Financial Management Ch.7

An increase in yield to maturity would be associated with an increase in the price of a bond.

False

The "risk-free rate of return" is equal to the inflation premium plus the real rate of return.

True

In estimating the market value of a bond, the coupon rate should be used as the discount rate.

False

The current yield measures the bond's total rate of return.

False

The yield to maturity is always equal to the interest payment of a bond.

False

When a bond trades at a discount to par, the yield to maturity on the bond will exceed the required return.

False

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

True

Corporate bond yields are generally higher than government bond yields for bonds having the same coupon rate and maturity.

True

(1+ r<nominal>)= (1+r<real>)*(1+ inflation rate)

True

A Treasury bond's bid price will be lower than the ask price.

True

A bond's payment at maturity is referred to as its face value.

True

An increase in inflation will cause a bond s required return to rise.

True

The appropriate discount rate for valuation of bonds is called the yield to maturity.

True

The further the yield to maturity of a bond moves away from the bond's coupon rate, the greater the price-change effect will be.

True

The longer the maturity of a bond, the greater the impact on price to changes in market interest rates.

True

The price of a bond is equal to the present value of all future interest payments added to the present value of the principal.

True

The term structure of interest rates determines the relationship between yield to maturity and maturity.

True

U.S. Treasury bonds have almost zero default risk but are subject to inflation risk.

True

When inflation rises, bond prices fall.

True

When the interest rate on a bond and its yield to maturity are equal, the bond will trade at par value.

True

When the market interest rate exceeds the coupon rate, bonds sell for less than face value to provide enough compensation to investors.

True

Zero-coupon bonds are issued at prices below face value, and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

True