Principles of Finance, 6e
Besley/Brigham
Chapter 10
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b.
Longer maturity.
c.
Shorter maturity.
d.
Higher required rate of return.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Valuation
87. Which of the following statements is correct?
a.
If the market rate of interest associated with a bond is higher than the coupon rate of that bond, the bond will
sell at a premium.
b.
If the market rate of interest associated with a bond is lower than the coupon rate of that bond, the bond will
sell at a discount.
c.
If the market rate of interest associated with a bond is equal to the coupon rate of that bond, the bond will sell
at par value.
d.
None of the above are correct.
e.
All of the above are correct.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Premiums and Discounts
88. The ____ yield is the annual dollar coupon interest paid on a bond divided by the bond’s current market price.
a.
b.
c.
d.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Interest Yield
Principles of Finance, 6e
Besley/Brigham
Chapter 10
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89. Which of the following statements is correct?
a.
Expected returns as estimated by a marginal investor are sometimes positive, but realized returns are always
negative.
b.
Expected returns as estimated by a marginal investor are always positive, but realized returns are sometimes
negative.
c.
Expected returns as estimated by a marginal investor are sometimes negative, but realized returns are always
positive.
d.
Expected returns as estimated by a marginal investor are always negative, but realized returns are sometimes
positive.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Stock Valuation
90. The ____ yield is the percentage change in the value of an investment.
a.
interest
b.
total
c.
current
d.
capital gains
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Capital Gains Yield
91. The total expected future yield on a bond consists of a(n) ____ yield which is usually positive and a(n) ____ yield
which can be positive or negative.
a.
current; interest
b.
capital gain; current
c.
interest; current
d.
interest; capital gain
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Principles of Finance, 6e
Besley/Brigham
Chapter 10
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a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Interest Rate Risk
96. Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction from interest rate
movements. For example, if interest rates rise, bond prices fall.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Prices and Interest Rates
97. For bonds, price sensitivity to a given change in interest rates generally increases as years remaining to maturity
increases.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Prices and Interest Rates
98. Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, be subject
to much more interest rate price risk if you purchased a 30-day bond than if you bought a 30-year bond.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
Principles of Finance, 6e
Besley/Brigham
Chapter 10
a.
True
b.
False
ANSWER:
True
POINTS:
1
105. You have just noticed in the financial pages of the local newspaper that you can buy a bond ($1,000 par) for $800. If
the coupon rate is 10 percent, with annual interest payments, and there are 10 years to maturity, you should make the
purchase if your required return on investments of this type is 12 percent.
a.
True
b.
False
ANSWER:
True
RATIONALE:
Equation solution: Thus, the value is
significantly higher than the market price and the bond should be purchased. Financial
calculator solution: Inputs: N = 10; I = 12; PMT = 100; FV = 1,000. Output: PV =
−$887.00. Cash flow time line:
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Value
106. The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds,
other things equal and held constant.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Prices and Interest Rates
107. If two bonds have the same maturity and the same expected rate of return, but one has a higher coupon, the price of
the low coupon bond will be more affected by a given change in interest rates.
Principles of Finance, 6e
Besley/Brigham
Chapter 10
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ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Valuation
115. A discount bond is a bond that sells below its par value.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Discount Bond
116. A premium bond is a bond whose par value is greater than the market value of that bond.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Premium Bond
117. Regardless of what interest rates do in the future, the bond’s price will approach the par value of the bond as it nears
its maturity date.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
Principles of Finance, 6e
Besley/Brigham
Chapter 10
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b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Coupon Rate
122. The present value of a $1,000 par value bond with an eight percent semi-annual coupon, five years to maturity and a
six percent yield to maturity is $1,085.30.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Value
123. A newly issued bond generally sells at, or very close to, its par value.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds
Time Estimate-a – 5 min.
TOPICS:
Bond Value
124. The yield to call is always higher than the yield to maturity for coupon bonds.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-01 – Stocks and Bonds