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1. A bond's payment at maturity is referred to as its face value.
2. When the market interest rate exceeds the coupon rate, bonds sell for less than face value
to provide enough compensation to investors.
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 Treasury 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. Asked yields can be guaranteed only to investors who buy a bond and hold it 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 were completely unknown in the United States until 1997 when the U.S.
Treasury began to issue inflation-indexed bonds known as Treasury Inflation-Protected
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. It is impossible for an investor to insure against the risk of bond default.
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 if the bond's expected
cash flows are discounted at a rate lower than the bond's coupon rate?
27. When an investor purchases a $1,000 par value bond that was quoted at 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
coupon of 6.5% and sells the bond 1 year later for $1,037.19?
