Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

In reading bond quotes:

When the current yield and the coupon rate are equal, the bond is:

The bond supply curve slopes upward because:

Bond prices and yields:

The impact of a decrease in expected inflation in the bond market will have a relatively large effect on the prices of bonds prices because:

Interest-rate risk results from:

A zero-coupon bond refers to a bond which:

Calculate the price of a zero coupon bond that has an interest rate of 6.65% (.0665), a face value of $100.00 and six-months to maturity.

Suppose that a bond is purchased at a discount (meaning that it is sold for less than face value).Could the yield to maturity ever be less than the coupon rate? Could the holding period return be less than the coupon rate? Explain.

In the chapter you read about David Bowie, a rock and roll artist from Great Britain, who has issued bonds.Would this be a likely avenue of financing for a new rock and roll group needing to raise funds to get their career going? Explain.

Use the example of a consol to show how bond prices and yields are inversely related.

A consol is:

Explain why holding period return, as an economic measure, does not have the same significance as current yield or yield to maturity.

The demand for U.S.government bonds is high relative to other bond issues because:

The Fisher effect refers to a situation where a change in expected inflation is offset one-for-one with a change in nominal interest rates (yield to maturity).Specifically, the real interest rate remains unchanged and the amount of borrowing remains unchanged.Assuming an increase in expected inflation, explain how this change would be reflected in the bond market.What would happen to bond prices and the quantity of bonds outstanding?

Fly-By-Night Inc.issues $100 face value, zero-coupon, one-year bonds.The current return on one-year, zero-coupon U.S.government bonds is 3.5%.If the Fly-By-Night bonds are selling for $92.00, what is the risk premium for these bonds?

In early 2001 the stock market in the U.S.suffered significant losses.What impact should this have had on the bond market and why?

When expected inflation increases, for any given nominal interest rate:

As general business conditions improve, all other factors constant:

A $1000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has: