finance test 2 chap 7
a discount; less than
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
are considered to be free of default risk.
Bonds issued by the U.S. government:
pay interest that is federally tax-free.
Municipal bonds:
The yield-to-maturity is less than the coupon rate.
A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years. The bond was originally issued 3 years ago at par. Which one of the following statements is accurate in respect to this bond today?
II premium price and IV yield-to-maturity that is less than the coupon rate only
A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond? I. discounted price II. premium price III. yield-to-maturity that exceeds the coupon rate IV. yield-to-maturity that is less than the coupon rate
zero coupon
A bond that has only one payment, which occurs at maturity, defines which one of the following?
decrease the market price
The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond?
II coupon rate > yield-to-maturity and IV coupon rate > current yield only
Which of the following are characteristics of a premium bond? I. coupon rate < yield-to-maturity II. coupon rate > yield-to-maturity III. coupon rate < current yield IV. coupon rate > current yield
I increase in time to maturity and IV decrease in coupon rate only
Which of the following increase the price sensitivity of a bond to changes in interest rates? I. increase in time to maturity II. decrease in time to maturity III. increase in coupon rate IV. decrease in coupon rate
II current yield = yield-to-maturity and IV market price = face value only
Which of the following relationships apply to a par value bond? I. coupon rate < yield-to-maturity II. current yield = yield-to-maturity III. market price = call price IV. market price = face value
3-year; 6 percent coupon, lesser years, higher coupon
Which one of the following bonds is the least sensitive to interest rate risk?
Decreasing the time to maturity increases the price of a discount bond, all else constant.
Which one of the following relationships is stated correctly? The coupon rate exceeds the current yield when a bond sells at a discount. The call price must equal the par value. An increase in market rates increases the market price of a bond. Decreasing the time to maturity increases the price of a discount bond, all else constant. Increasing the coupon rate decreases the current yield, all else constant.
long-term; zero coupon
You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?
You will realize a capital gain on the bond if you sell it today.
You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?