Exam 6: Valuing Bonds

Periodic receipts of interest by the bondholder are known as:

What happens to the price of a 3-year bond (with par value $1,000)with an 8% coupon when interest rates change from 8 to 6%?

When riskier corporations issue bonds that include a default premium,the promised yield will sometimes be:

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.

The discount rate that makes the present value of a bond's payments equal to its price is termed the:

Explain why bond investors may be interested in TIPS rather than traditional bonds.Why have TIPS not been popular lately?

The yield curve depicts the current relationship between:

Many investors may be drawn to municipal bonds because of the bonds':

Which of the following would not be associated with a zero-coupon bond?

A bond's yield to maturity takes into consideration:

Which of the following bonds would be considered to be of investment grade?

What might cause investors to rationally stay away from long-term bonds even when the yield curve is upward-sloping?

When market interest rates exceed a bond's coupon rate,the bond will:

Explain why bond prices fluctuate in response to changing interest rates.What adverse effect might occur if bond prices remain fixed prior to their maturity?

If an investor purchases a 3%,2-year TIPS and the CPI increases 3% over each of the next 2 years,how much does the investor receive at maturity?

An investor buys a 5-year,9% coupon bond for $975,holds it for 1 year,and then sells the bond for $985.What was the investor's rate of return?

What is meant by "default risk" in bonds,and how do investors respond to it?

Why might a bond's current yield offer an incomplete idea of what return the investor is receiving?

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. Indexed bonds were not completely unknown in the United States before 1997.For example,in 1780 American Revolution soldiers were compensated with indexed bonds that paid the value of "five bushels of corn,68 pounds and four-sevenths part of a pound of beef,ten pounds of sheep's wool,and sixteen pounds of sole leather."

A bond's rate of return is equal to its coupon payment divided by the price paid for the bond.