Ch8 Assignment

A  the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

B  calculated by dividing face value of the bond by market value.

C  calculated by dividing market value of the bond by its face value.

D  the interest rate on the bond, relative to its face value, when it is issued.

A  7.154%

B  6.978%

C  6.570%

D  6.465%

A  6.465%

B  5.249%

C  6.973%

D  6.570%

A  Bond prices are directly related to interest rate movements.

B  For a given change in interest rates, the prices of higher-coupon bonds will change more drastically than the prices of lower-coupon bonds.

C  For a given change in interest rates, the prices of short-term bonds will change more drastically than the prices of long-term bonds.

D  For a given change in interest rates, the prices of long-term bonds will change more drastically than the prices of short-term bonds.

A  $1,015.85

B  $1,455.38

C  $2,156.14

D  $1,897.23

A  Bad

B  Good

C  Fair

A  $1,000.00

B  $1,824.16

C  $1,330.55

D  $1,033.53

A  $2,103.25

B  $1,541.97

C  $1,993.15

D  $1,077.93

A  par

B  book value

C  a discount

D  a premium

A  9.5%.

B  10%.

C  8.51%

D  7.65%

A  $1,023

B  $958

C  $1,043

D  $1,000

A  issuer may replace it with a bond that has a lower coupon rate.

B  bondholder may sell it for a higher price.

C  issuer may sell it for a higher price.

D  issuer may replace it with a bond that has a higher coupon rate.

A  $781.99

B  $784.27

C  $1,000.00

D  $1,259.38

A  have less interest rate risk than longer-term bonds.

B  and longer-term bonds have the same amount of interest rate risk because their coupon interest rates are fixed.

C  have more interest rate risk than longer-term bonds.

D  and longer-term bonds have no interest rate risk because their coupon interest rates are fixed.

A  $255.19

B  $412.16

C  $345.16

D  $311.81

A  7.67%

B  16.92%

C  14.40%

D  8.50%

A  $2,151.55

B  $1,308.87

C  $1,005.19

D  $1,954.12

A  equal to the bond’s coupon rate.

B  greater than the bond’s coupon rate.

C  less than the bond’s coupon rate.

D  none of these are true.

A  Zero coupon bonds sell well below their face value (at a deep discount) because they offer no coupons.

B  The most frequent and regular issuer of zero coupon securities is the U.S. Treasury Department.

C  Zero coupon bonds have no coupon payments over its life and only offer a single payment at maturity.

D  All of these are true.

A  To compute a bond’s price, one needs to calculate the present value of the bond’s expected cash flows.

B  The required rate of return, or discount rate, for a bond is the market interest rate called the bond’s yield to maturity.

C  The expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be received.

D  The value, or price, of any asset is the future value of its cash flows.

A  All of these are true statements.

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

C  U.S. Treasury securities are the best proxy measure for the risk-free rate.

D  Investors must pay a premium to purchase a security that exposes them to default risk.

A  6.70%

B  6.81%

C  13.40%

D  None of these

A  The real rate of interest varies with the business cycle, with the lowest rates at the end of a period of business expansion and the highest at the bottom of a recession.

B  If investors believe inflation will be subsiding in the future, the prevailing yield curve will have a positive slope.

C  The interest rate risk premium always adds a downward bias to the slope of the yield curve.

D  The longer the maturity of a security, the greater its interest rate risk.

A  Long-term bonds have lower price volatility than short-term bonds of similar risk.

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

C  All other things being equal, short-term bonds are riskier than long-term bonds.

D  Interest rate risk decreases as maturity increases.

A  $1,195

B  $882

C  $1,033

D  $951

A  12%

B  13%

C  11%

D  14%

A  $604

B  $860

C  $684

D  $515

A  $1,037

B  $1,085

C  $923

D  $861

A  less than the bond’s coupon rate.

B  none of these are true.

C  equal to the bond’s coupon rate.

D  greater than the bond’s coupon rate.