Finance

2. All else constant, a coupon bond that is selling at a premium, must have A) a yield to maturity that is less than the coupon rate. B) a coupon rate that is equal to the yield to maturity. C) a market price that is less than par value. D) semiannual interest payments. E) a coupon rate that is less than the yield to maturity.

A) a yield to maturity that is less than the coupon rate.

11. Bonds issued by the U.S. government A) are considered to be default-free. B) are exempt from interest-rate risk. C) provide totally tax-free income. D) pay interest that is exempt from federal income tax. E) are taxed the same as municipal bonds.

A) are considered to be default free

8. A bond with both a face value and a market value of $1,000 is called a ________ bond. A) par value B) premium C) discount D) zero coupon E) floating rate

A) par value

12. Municipal bonds A) primarily appeal to high tax-bracket investors. B) generally pay a higher pretax rate of return than corporate bonds. C) are issued only by local municipalities, such as a city or a borough. D) are rarely callable. E) pay interest that is exempt from all income tax.

A) primarily appeal to high tax-bracket investors

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. A. A discount; less than B. A premium; less than C. A premium; equal to D. A discount; higher than

A. discount; less than

4. Interest rate risk ________ as the time to maturity increases. A) increases at an increasing rate B) increases at a decreasing rate C) increases at a constant rate D) decreases at an increasing rate E) decreases at a decreasing rate

B) increases at a decreasing rate

13. Assume you purchase a bond with a quoted price of 98.6208 on June 30. The bond pays interest on February 1 and August 1. The invoice price you pay for this purchase will equal the A) clean price. B) asked price. C) dirty price. D) par value. E) bid price.

C) dirty price

10. The parts of an indenture that protect the interests of the lender by limiting certain actions that a company might take during the term of the loan are called A) deferred call provisions. B) sinking funds provisions. C) protective covenants. D) trustee relationships. E) bond ratings.

C) protective covenants

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the: A. Current yield will decrease B. Coupon rate will also increase C. Market price of the bond will decrease D. Yield to maturity will be less than the coupon rate

C. Market price of the bond will decrease

1. All else constant, a bond will sell at ________ when the yield to maturity is ________ the coupon rate. A) par; less than B) a premium; equal to C) par; higher than D) a discount; higher than E) a premium; higher than

D) a discount; higher than

7. The yield to maturity on a bond is the rate A) computed as the annual interest divided by the bond's market price. B) an investor earns if the bond is sold prior to the maturity date. C) of annual interest initially offered when the bond was issued. D) of return currently required by the market. E) of annual interest paid on the bond.

D) of return currently required by the market

3. Interest rate risk increases as A) the time to maturity decreases. B) the coupon rate increases. C) a bond matures. D) the coupon payment decreases. E) either the time to maturity or the coupon rate increases.

D) the coupon payment decreases

6. All else constant, as the market price of a bond increases the current yield ________ and the yield to maturity ________. A) decreases; decreases B) increases; decreases C) increases; increases D) decreases; increases E) remains constant; increases

D). decreases; decreases

14. An upward sloping yield curve indicates A) interest rates are declining. B) lower quality bonds have higher yields. C) short-term rates will rise sharply in the near future. D) an inverse relationship between bond prices and yields. E) long-term rates are higher than medium-term rates.

E) long-term rates are higher than medium-term rates

5. Last year, Theo purchased a fixed-rate, 7-year bond at par that has a coupon rate of 6.5 percent. If the current market rate for this type and quality of bond is 6.8 percent, then he should expect A) his interest payments to increase. B) the bond's yield to maturity to remain constant. C) the current yield today to be less than 6.5 percent. D) the bond's current market price to exceed its face value. E) to realize a capital loss if he sold the bond at today's market price.

E) to realize a capital loss if he sold the bond at today's market price