Question 1

Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the ________ premium is lower for government bonds.

Accepted Answer

A) interest rate risk 
B) inflation 
C) default 
D) maturity 
A) interest rate risk 
B) inflation 
C) default 
D) maturity C

Question 2

Bonds cannot be worth less than their book value.

Accepted Answer

A) True 
 B)False  False

Question 3

As interest rates,and consequently investors' required rates of return,change over time,the ________ of outstanding bonds will also change.

Accepted Answer

A) maturity date 
B) coupon interest payment 
C) par value 
D) price 
A) maturity date 
B) coupon interest payment 
C) par value 
D) price D

Question 4

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Accepted Answer

A) True 
 B)False

Question 5

The duration of a zero coupon bond is the same as the bond's maturity.

Accepted Answer

A) True 
 B)False

Question 6

If you are willing to pay $1,392.05 for a 15-year,$1,000 par value bond that pays 10% interest semiannually,what is your expected rate of return?

Accepted Answer

Try 3%.
$1,392.05 =

Question 7

Pursuant to the Fisher Effect,the real interest rate is exactly equal to the nominal interest rate less the rate of inflation

Accepted Answer

A) True 
 B)False

Question 8

As the maturity date of a bond approaches,the bond's market value approaches its par value.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about zero coupon bonds is FALSE?

Accepted Answer

A) When the bonds mature,the issuing firm is faced with a small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued. 
B) Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall. 
C) Yields tend to be bid down on zero coupon bonds due to investor demand for the bonds. 
D) Zero coupon bonds provide a positive annual cash flow to the issuing firm over the life of the bonds. 
A) When the bonds mature,the issuing firm is faced with a small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued. 
B) Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall. 
C) Yields tend to be bid down on zero coupon bonds due to investor demand for the bonds. 
D) Zero coupon bonds provide a positive annual cash flow to the issuing firm over the life of the bonds.

Question 10

The interest on corporate bonds is typically paid:

Accepted Answer

A) semiannually. 
B) annually. 
C) quarterly. 
D) monthly. 
A) semiannually. 
B) annually. 
C) quarterly. 
D) monthly.

Question 11

Bond ratings are favorably affected by:

Accepted Answer

A) a greater reliance on equity in financing the firm. 
B) high variability in past earnings. 
C) large firm size. 
D) both A and C. 
A) a greater reliance on equity in financing the firm. 
B) high variability in past earnings. 
C) large firm size. 
D) both A and C.

Question 12

As investors' required rate of return on a bond increases,the value of the bond increases also.

Accepted Answer

A) True 
 B)False

Question 13

A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of:

Accepted Answer

A) 14.55%. 
B) 12.44%. 
C) 7.27%. 
D) 5.61%. 
A) 14.55%. 
B) 12.44%. 
C) 7.27%. 
D) 5.61%.

Question 14

A bond has a coupon rate of 10% and yield to maturity of 12%.Which of the following must be true?

Accepted Answer

A) The bond is selling at a discount. 
B) The bond is selling at a premium. 
C) The bond's current yield is less than the coupon rate. 
D) Both A and C. 
E) Both B and C. 
A) The bond is selling at a discount. 
B) The bond is selling at a premium. 
C) The bond's current yield is less than the coupon rate. 
D) Both A and C. 
E) Both B and C.

Question 15

Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and a coupon interest rate of 8%,paid semiannually.If you require a 10% rate of return on this investment,what is the maximum price that you would be willing to pay for this bond?

Accepted Answer

A) $619 
B) $674 
C) $761 
D) $828 
E) $902 
A) $619 
B) $674 
C) $761 
D) $828 
E) $902

Question 16

A $1,000 par value bond is currently listed as selling at 92 1/8.This means:

Accepted Answer

A) that you can buy the bond for $92.125. 
B) that you can buy the bond for $921.25. 
C) that if you purchase the bond today,you will receive $921.25 when the bond matures. 
D) none of the above. 
A) that you can buy the bond for $92.125. 
B) that you can buy the bond for $921.25. 
C) that if you purchase the bond today,you will receive $921.25 when the bond matures. 
D) none of the above.

Question 17

Frazier Fudge has a $1,000 par value bond that is currently selling for $1,300.It has an annual coupon rate of 7%,paid semiannually,and has nine years remaining until maturity.What is the annual yield to maturity on the bond? (Round to the nearest whole percentage. )

Accepted Answer

A) 3% 
B) 5% 
C) 7% 
D) 9% 
A) 3% 
B) 5% 
C) 7% 
D) 9%

Question 18

The par value of a bond:

Accepted Answer

A) never equals its market value. 
B) is determined by the investor. 
C) generally is $1,000. 
D) is never returned to the bondholder. 
A) never equals its market value. 
B) is determined by the investor. 
C) generally is $1,000. 
D) is never returned to the bondholder.

Question 19

Bondholders have a priority claim on assets ahead of:

Accepted Answer

A) common stockholders. 
B) preferred stockholders. 
C) both A and B. 
D) none of the above. 
A) common stockholders. 
B) preferred stockholders. 
C) both A and B. 
D) none of the above.

Question 20

Explain why an increase in the inflation rate will cause the yield to maturity on a bond to increase.

Accepted Answer

When the inflation rate increases,it mea

Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the ________ premium is lower for government bonds.

Bonds cannot be worth less than their book value.

As interest rates,and consequently investors' required rates of return,change over time,the ________ of outstanding bonds will also change.

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

The duration of a zero coupon bond is the same as the bond's maturity.

If you are willing to pay $1,392.05 for a 15-year,$1,000 par value bond that pays 10% interest semiannually,what is your expected rate of return?

Pursuant to the Fisher Effect,the real interest rate is exactly equal to the nominal interest rate less the rate of inflation

As the maturity date of a bond approaches,the bond's market value approaches its par value.

Which of the following statements about zero coupon bonds is FALSE?

The interest on corporate bonds is typically paid:

Bond ratings are favorably affected by:

As investors' required rate of return on a bond increases,the value of the bond increases also.

A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of:

A bond has a coupon rate of 10% and yield to maturity of 12%.Which of the following must be true?

Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and a coupon interest rate of 8%,paid semiannually.If you require a 10% rate of return on this investment,what is the maximum price that you would be willing to pay for this bond?

A $1,000 par value bond is currently listed as selling at 92 1/8.This means:

Frazier Fudge has a $1,000 par value bond that is currently selling for $1,300.It has an annual coupon rate of 7%,paid semiannually,and has nine years remaining until maturity.What is the annual yield to maturity on the bond? (Round to the nearest whole percentage. )

The par value of a bond:

Bondholders have a priority claim on assets ahead of:

Explain why an increase in the inflation rate will cause the yield to maturity on a bond to increase.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 9: Debt Valuation and Interest Rates

Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the ________ premium is lower for government bonds.

Bonds cannot be worth less than their book value.

As interest rates,and consequently investors' required rates of return,change over time,the ________ of outstanding bonds will also change.

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

The duration of a zero coupon bond is the same as the bond's maturity.

If you are willing to pay $1,392.05 for a 15-year,$1,000 par value bond that pays 10% interest semiannually,what is your expected rate of return?

Pursuant to the Fisher Effect,the real interest rate is exactly equal to the nominal interest rate less the rate of inflation

As the maturity date of a bond approaches,the bond's market value approaches its par value.

Which of the following statements about zero coupon bonds is FALSE?

The interest on corporate bonds is typically paid:

Bond ratings are favorably affected by:

As investors' required rate of return on a bond increases,the value of the bond increases also.

A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of:

A bond has a coupon rate of 10% and yield to maturity of 12%.Which of the following must be true?

Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and a coupon interest rate of 8%,paid semiannually.If you require a 10% rate of return on this investment,what is the maximum price that you would be willing to pay for this bond?

A $1,000 par value bond is currently listed as selling at 92 1/8.This means:

Frazier Fudge has a $1,000 par value bond that is currently selling for $1,300.It has an annual coupon rate of 7%,paid semiannually,and has nine years remaining until maturity.What is the annual yield to maturity on the bond? (Round to the nearest whole percentage. )

The par value of a bond:

Bondholders have a priority claim on assets ahead of:

Explain why an increase in the inflation rate will cause the yield to maturity on a bond to increase.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters