Chapter 06 Test Bank – Static Key
1.
When a bond matures, the issuer repays the bond’s face value.
2.
When the market interest rate exceeds the coupon rate, bonds sell for less than face value.
3.
Current yield overstates the return of premium bonds since investors who buy a bond at a premium face a capital loss over
the life of the bond.
4.
A bond’s rate of return is equal to its coupon payment divided by the price paid for the bond.
5.
A bond’s bid price will be lower than the ask price.
6.
A long-term investor would more likely be interested in a bond’s current yield rather than its yield to maturity.
7.
Bonds that have a Standard & Poor’s rating of BBB or better are considered to be investment-grade bonds.
8.
Speculative-grade bonds have default risk; investment grade bonds do not.
9.
TIPS are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.
10.
The return to bondholders is guaranteed to equal the yield to maturity only if the bond is held until maturity.
11.
It would be realistic to read an ask price listed as 100.127 and a bid price of 100.143.
12.
Indexed bonds in the United States are known as Treasury Interest-Paid Securities, or TIPS.
13.
The current yield measures the bond’s total rate of return.
14.
When a financial calculator or spreadsheet program finds a bond’s yield to maturity, it uses a trial–and-error process.
15.
Even when the yield curve is upward-sloping, investors might rationally stay away from long-term bonds.
16.
Bonds with a rating of Ba or below by Moody’s are referred to as speculative grade, high-yield, or junk bonds.
17.
Bonds rated BB or above by Standard & Poor’s are called investment grade.
18.
Bonds rated Ba by Moody’s have the same safety rating as the bonds rated BB by Standard & Poor‘s.
19.
Zero-coupon bonds are issued at prices below face value, and the investor’s return comes from the difference between the
purchase price and the payment of face value at maturity.
20.
Issuers compensate investors for default risk by putting a high face value on their bonds.
21.
Credit risk implies that the promised yield to maturity on the bond is higher than the expected yield.
22.
Bond ratings measure a bond’s credit risk.
23.
The coupon rate of a bond equals:
24.
Periodic receipts of interest by the bondholder are known as:
25.
As the coupon rate of a bond increases, the bond’s:
26.
Assume a bond is currently selling at par value. What will happen in the future if the yield on the bond is lower than the
coupon rate?
27.
If a bond’s asked price is 97.162, the investor:
28.
How much does the $1,000 to be received upon a bond’s maturity in 4 years add to the bond’s price if the appropriate
discount rate is 6%?
29.
What happens to a discount bond as the time to maturity decreases?
30.
How much should you pay for a $1,000 bond with 10% coupon, annual payments, and 5 years to maturity if the interest rate
is 12%?
31.
How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if
the interest rate is 7%?
32.
Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%?
33.
If an investor purchases a bond when its current yield is higher than the coupon rate, then the bond’s price will be expected
to:
34.
The current yield of a bond can be calculated by:
35.
What is the current yield of a bond with a 6% coupon, 4 years until maturity, and a price quote of 84?
36.
A bond’s par value can also be called its:
37.
A bond’s yield to maturity takes into consideration:
38.
The discount rate that makes the present value of a bond’s payments equal to its price is termed the:
39.
What is the coupon rate for a bond with 3 years until maturity, a price of $1,053.46, and a yield to maturity of 6%? Interest is
paid annually.
40.
What is the yield to maturity for a bond paying $100 annually that has 6 years until maturity and sells for $1,000?
41.
Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon. If interest rates change from 8 to 6% the bond’s
price will:
42.
Which one of the following bond values will change when interest rates change?
43.
What happens to the coupon rate of a $1,000 face value bond that pays $80 annually in interest if market interest rates
change from 9% to 10%?
44.
Which one of the following is fixed for the life of a given bond?
45.
What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with an annual coupon payment of 6.5% and
sells the bond 1 year later for $1,037.19?
46.
If a bond investor‘s yield for a particular period does not change, then during that period, the bond’s return :
47.
What is the relationship between a bondholder’s rate of return and the bond’s yield to maturity if he does not hold the bond
until it matures?
48.
If the coupon rate on an outstanding bond is lower than the relevant current interest rate, then the yield to maturity will be:
49.
If a 4-year bond with a 7% coupon and a 10% yield to maturity is currently worth $904.90, how much will it be worth 1 year
from now if interest rates are constant?
50.
What price will be paid for a U.S. Treasury bond with an ask price of 135.4062 if the face value is $100,000?
51.
You purchased a 6% annual coupon bond at face value and sold it one year later for $1,015.16. What was your rate of return
on this investment if the face value at maturity was $1,000?
52.
How does a bond dealer generate profits when trading bonds?
53.
A bond is priced at $1,100, has 10 years remaining until maturity, and has a 10% coupon, paid semiannually. What is the
amount of the next interest payment?
54.
The yield curve depicts the current relationship between:
55.
When the yield curve is upward-sloping, then:
56.
Nominal U.S. Treasury bond yields:
57.
Which one of these is included in the yield of a bond with a low credit rating but not included in a U.S. Treasury bond yield?
Assume both bonds are selling at a premium.
58.
The purpose of a floating-rate bond is to: