FIN Chapter 6 and 7

Which one of the following statement is false?

• A bond's coupon refers to its interest payment.

• Face value is the principal amount of a bond that is repaid at the end of the loan term.

• Coupon rate is used to discount all future interest payment cash flows.

• The principal amount of a bond is repaid on Maturity date.

• The basic idea for asset valuation is to discount all future cash flows (that will be
  generated by this asset) to present, the present value of all those future cash flows is
  the price of the asset.

Genesco issued 15% coupon rate, 15-year maturity, $1,000 corporate bonds. Which one
of the following statement is correct?

• If the required return on this bond is 14%, then the price of the bond is lower than
  $1000.

• If this is a semi-annual payment bond, then each payment is $150.

• Your return on this bond is 15%.

• This bond price will approach $1000 as its maturity date approaches.

• None of the above.

3. Which one of the following statement is false?

• Yield to maturity refers to a bond's rate of return that is required by the market place
  (or investors)

• The current yield on a bond is equal to the annual interest divided by current market
  price.

• YTM is used to discount all the interest payments and face value.

• Coupon rate is used to discount all the interest payments and face value.

• None of the above

Which one of the following statement is correct?

• A call provision (a callable bond) grants the bond holder the right to sell it back to
  issuer.

• A puttable bond gives the issuer the right to buy it back from its holder.

• A secured bond is backed by assets

• Municipal bond is issued by federal government.

• Notes typically have maturity more than 10 years.

Which one of the following statement is correct?

• The yield to maturity on a discount bond is the coupon rate.

• When a bond's yield to maturity is higher than the bond's coupon rate, the bond is
  selling at a premium

• Bond price is inversely related to market interest rate (YTM).

• When YTM equal to coupon rate, the price of the bond equal to its interest payment.

• An unexpected decrease in market interest rates will cause a the price of the bond to
  decrease.

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the
bond should be

• selling at a discount; i.e., the bond's market price should be less than its face
  (maturity) value.

• selling at a premium; i.e., the bond's market price should be greater than its face
  value.

• selling at par; i.e., the bond's market price should be the same as its face value.

• purchased because it is a good deal.

The portion of a bond’s yield that compensates investors for the possibility that the
bond’s interest or principal might not be paid is called the:

• interest rate risk premium.

• missed coupon rate.

• liquidity premium.

• yield to maturity.

• default risk premium.

A 12-year bond that has a 12 percent coupon rate is currently selling for $1,000, which
equals the bond's face value. If interest is paid semiannually, the bond's yield to maturity
is

• equal to 12 percent.

• greater than 12 percent.

• less than 12 percent.

• More information is needed to answer this question.

• None of the above is correct.

A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of
$70 every year. What is the coupon rate?

• 6.76 percent

• 7.00 percent

• 7.12 percent

• 13.51 percent

• 14.00 percent

Answer explanation

Coupon rate = $70/$1,000 = 7 percent

A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of
$70 every year. What is the coupon/current yield?

• 6.76 percent

• 7.00 percent

• 7.12 percent

• 13.51 percent

• 14.00 percent

Answer explanation

Coupon yield = $70/$1,036 = 6.76 percent