FIN222 Week 3 Workshop

From the perspective of a corporation, interest payments are tax deductible while dividends are not.

 

• True

• False

Throughout the life of bonds, the yield to maturity determines the size of the coupon paid by a bond issuing company. 

• True

• False

When a coupon rate > market interest rate, bonds are priced at discount.

• True

• False

 

Zero coupon bonds sell well above their par value because they offer no coupons.

• True

• False

As interest rates decline, the prices of bonds rise; and as interest rates rise, the prices of bonds decline.

 

• True

• False

The prices of lower coupon bonds and short-term bonds respond more sensitively to a change in market interest rates (therefore more price-volatile and greater interest rate risk!).

 

• True

• False

Interest rate risk decreases as n (=term to maturity) increases.

• True

• False

Yield curves show graphically how market yields vary as n(=term to maturity) changes.

 

• True

• False

The risk that the lender may not receive payments as promised is called default risk.

• True

• False

Bonds with a high risk of default generally offer high yields.

• True

• False