All else constant, a coupon bond that is selling at a premium, must have:

D) a yield to maturity that is less than the coupon rate.

A) a coupon rate that is equal to the yield to maturity.

B) a market price that is less than par value.

C) semiannual interest payments.

E) a coupon rate that is less than the yield to maturity.

The market price of a bond increases when the:

E) coupon is paid annually rather than semiannually.

Aspens is preparing a bond offering with a coupon rate of 5.5 percent. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest annually. Which one of the following statements is correct? Assume a face value of $1,000.

E) At issuance, the bond's yield to maturity is 5.5 percent

A) The bonds will pay 19 interest payments and one principal payment.

B) The bonds will initially sell at a discount.

C) At maturity, the bonds will pay a final payment of $1,027.50.

D) The bonds will pay twenty equal coupon payments.

A par value bond offers a coupon rate of 7 percent with semiannual interest payments. The effective annual rate provided by these bonds must be:

D) greater than 7 percent but less than 8 percent.

B) greater than 3.5 percent but less than 4 percent.

Rosina purchased one 15-year bond at par value when it was initially issued. This bond has a coupon rate of 7 percent and matures 13 years from now. If the current market rate for this type and quality of bond is 7.5 percent, then Rosina should expect:

C) to realize a capital loss if she sold the bond at today's market price.

A) the bond issuer to increase the amount of all future interest payments.

B) the yield to maturity to remain constant due to the fixed coupon rate.

D) today's market price to exceed the face value of the bond.

E) the current yield today to be less than 7 percent.

E) has a market price that is computed using semiannual compounding of interest

B) has a price equal to the future value of the face amount given a positive rate of return.

C) can only be issued by the U.S. Treasury.

D) has less interest rate risk than a comparable coupon bond.

Which one of these bonds is the most interest-rate sensitive?

C) 5-year, 6 percent, annual coupon bond

D) 10-year, 6 percent, semiannual coupon bond

E) 10-year, 6 percent, annual coupon bond

The yield to maturity:

E) equals both the current yield and the coupon rate for par value bonds

A) that is expected will be realized any time a bond is sold.

B) will exceed the coupon rate when the bond is selling at a premium.

C) equals the current yield for all annual coupon bonds.

D) can only be realized if a bond is purchased on the issue date at par value.

If a bond's yield to maturity is less than its coupon rate, the bond will sell at a ________, and increases in market interest rates will:

C) premium; decrease this premium.

A) discount; decrease this discount.

B) discount; increase this discount.

D) premium; increase this premium.

E) premium; not affect this premium

The longest term bonds ever issued had an initial maturity date of:

E) never as the bonds are perpetual.

All else held constant, interest rate risk will increase when the time to maturity:

D) increases or the coupon rate decreases.

A) decreases or the coupon rate increases.

B) decreases or the coupon rate decreases.

C) increases or the coupon rate increases.

E) decreases and the coupon rate equals zero

The interest paid on any municipal bond is:

D) exempt from federal income taxation and may or may not be exempt from state taxation.

B) subject to default risk and is exempt from state income taxation.

C) free of both default risk and federal income taxation.

E) taxable at the federal level and tax exempt at the state and local level.

The interest rate for a tax-exempt bond that equates to the rate paid on a taxable bond is computed as:

B) Tax-exempt rate × (1 − T*).

Most of the trading in bonds is conducted:

A) in person on the floor of the NYSE.

B) by dealers located in Chicago.

C) by brokers on various trading floors.

E) on the trade floor in Washington, DC

The dirty price of a bond is defined as the:

D) quoted price plus the accrued interest.

A) market price minus any taxes due on the accrued interest.

B) market price minus the accrued interest.

C) clean price minus the accrued interest.

E) clean price minus any taxes due on the accrued interest

A newspaper listing of bond prices has an "Asked yield" column. This yield is based on the asked price and represents the:

B) difference between the current yield and the yield to maturity.

C) difference between the bond's yield and the yield of a comparable Treasury issue.

A bond is listed in a newspaper at a bid of 105.4844. This quote should be interpreted to mean:

B) you can sell that bond at a price equal to 105.4844 percent of face value.

A) the bond will pay semiannual interest payments of $105.4844 per $1,000 of face value.

C) the bond will pay annual interest payments of $105.4844 per $1,000 of face value.

D) you can buy that bond at a price equal to 105.4844 percent of face value.

E) the bond dealer is willing to sell that bond for a price equal to 105.4844 percent of par

The total price you pay to purchase a premium bond is referred to as the:

A) dirty price or the full price.

B) clean price or the invoice price.

C) invoice price or the par value.

D) dirty price or the par value.

E) clean price or the par value

An increase in the rate of inflation will:

E) increase the nominal interest rate but will not affect the real interest rate.

A) increase both the real and the nominal rate of interest.

B) decrease both the real and the nominal rate of interest.

C) increase the nominal interest rate while lowering the real interest rate.

D) increase the real interest rate but not affect the nominal interest rate.

If you want to increase your purchasing power by investing in a bond, then:

E) you must earn a positive real rate of return on that bond

A) you must purchase that bond at a discount.

B) the nominal rate of return on that bond must be less than the inflation rate.

C) you should purchase a premium bond.

D) the nominal rate of return must equal or exceed the rate of inflation.

The monthly returns on US Treasury bills over the past 50 years have:

E) sometimes been less than the monthly rate of inflation

A) exceeded inflation for all periods.

B) provided consistently positive monthly rates of return for investors.

C) ranged between zero and five percent on an annualized basis.

D) always been positive on a real basis.

The relationship between nominal rates, real rates, and inflation is known as the:

A) Miller and Modigliani theorem.

D) term structure of interest rates.

The relationship between nominal interest rates on default-free, pure discount securities and the time to maturity is called the:

C) term structure of interest rates.

The term structure of interest rates reflects the:

B) real rate of interest plus the inflation premium.

C) nominal interest rate plus the interest rate risk premium.

E) real rate, inflation premium, interest rate risk premium, and the liquidity premium

An upward-sloping term structure of interest rates indicates that:

A) longer-term rates are higher than shorter-term rates.

B) investors should expect interest rates to decline in the future.

C) short and intermediate term rates are real rates while long term rates are nominal rates.

D) the Fed is expected to decrease rates in the near term.

E) the larger the investment in dollars, the higher the interest rate paid

The term structure of interest rates:

E) is based on pure discount bonds while the Treasury yield curve is based on coupon bond yields

A) plots interest rates against bond ratings.

B) is just another name for the yield curve.

C) ignores interest rate risk premiums while the Treasury yield curve includes those premiums.

D) ignores both inflation and interest rate risk premiums.

The term structure of interest rates:

B) can be humped in the middle.

C) is downward-sloping when inflation is expected to rise.

D) obtains its slope from the real rate of return.

E) generally has the same degree of steepness each year

Which of these is included in the return on a municipal bond but excluded from the return on a US Treasury bond?

E) Liquidity premium and taxability premium

A) Inflation premium and liquidity premium

B) Taxability premium and interest rate risk premium

C) Default risk premium and interest rate risk premium

D) Inflation premium and default risk premium

CF Chap 8

Authored by Dung Ngọc

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MULTIPLE CHOICE QUESTION

30 sec • 10 pts

A bond that makes no coupon payments and is initially priced at a deep discount is called a ________ bond.

A) Treasury

B) municipal

C) floating-rate

D) junk

E) zero coupon

MULTIPLE CHOICE QUESTION

30 sec • 10 pts

The stated interest payment, in dollars, made on a bond each period is called the bond's:

A) coupon.

B) face value.

C) maturity.

D) yield to maturity.

E) coupon rate.

MULTIPLE CHOICE QUESTION

30 sec • 10 pts

The principal amount of a bond that is repaid at the end of the loan term is called the bond's:

A) coupon.

B) face value.

C) maturity.

D) yield to maturity.

E) coupon rate

MULTIPLE CHOICE QUESTION

30 sec • 10 pts

The specified date on which the principal amount of a bond is repaid is called the bond's:

A) coupon.

B) face value.

C) maturity.

D) yield to maturity.

E) coupon rate

MULTIPLE CHOICE QUESTION

30 sec • 10 pts

The rate of return required by investors in the market for owning a bond is called the:

A) coupon.

B) face value.

C) maturity.

D) yield to maturity.

E) coupon rate.

MULTIPLE CHOICE QUESTION

30 sec • 10 pts

The annual interest paid by a bond divided by the bond's face value is called the:

A) coupon.

B) face value.

C) maturity.

D) yield to maturity.

E) coupon rate

MULTIPLE CHOICE QUESTION

30 sec • 10 pts

A bond with a face value of $1,000 that sells for $1,000 in the market is called a ________ bond.

A) par value

B) discount

C) premium

D) zero coupon

E) floating rate

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CF Chap 8

A bond that makes no coupon payments and is initially priced at a deep discount is called a ________ bond.

The stated interest payment, in dollars, made on a bond each period is called the bond's:

The principal amount of a bond that is repaid at the end of the loan term is called the bond's:

The specified date on which the principal amount of a bond is repaid is called the bond's:

The rate of return required by investors in the market for owning a bond is called the:

The annual interest paid by a bond divided by the bond's face value is called the:

A bond with a face value of $1,000 that sells for $1,000 in the market is called a ________ bond.

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a ________ bond.

A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of and interest payments in the amount of each.

All else constant, a bond will sell at when the yield to maturity is the coupon rate.

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CF Chap 8

A bond that makes no coupon payments and is initially priced at a deep discount is called a ________ bond.

The stated interest payment, in dollars, made on a bond each period is called the bond's:

The principal amount of a bond that is repaid at the end of the loan term is called the bond's:

The specified date on which the principal amount of a bond is repaid is called the bond's:

The rate of return required by investors in the market for owning a bond is called the:

The annual interest paid by a bond divided by the bond's face value is called the:

A bond with a face value of $1,000 that sells for $1,000 in the market is called a ________ bond.

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a ________ bond.

A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of ________ and interest payments in the amount of ________ each.

All else constant, a bond will sell at ________ when the yield to maturity is ________ the coupon rate.

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A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of and interest payments in the amount of each.

All else constant, a bond will sell at when the yield to maturity is the coupon rate.