Chapter 8 Finance Quiz and HW
In order to calculate the price of a bond, which of the following input is needed?
Maturity period.
The price of a bond is calculated by:
adding the present value of the principal payment and the present value of coupon payments.
Bonds sell at a discount when the market rate of interest is:
greater than the bond's coupon rate.
In regard to interest rate risk, short-term bonds:
have less interest rate risk than longer-term bonds.
The rate used to discount a bond's cash flow stream in bond valuation is the:
market interest rate.
Which one of the following statements is true of a bond's yield to maturity? -The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. -It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised. -A bond's yield to maturity changes daily as interest rates increase or decrease. -All of the above are true.
All of the above
Which of the following statements is true?
The longer the maturity of a security, the greater its interest rate risk.
The three economic factors that affect the shape of the yield curve are:
The three economic factors that affect the shape of the yield curve are:
A bond pays a coupon interest rate of 7.5 percent. The market rate on similar bonds is 8.4 percent. The bond will sell at _____.
discount
The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:
equal to the price of the bond.
Bonds sell at a premium when the market rate of interest is:
less than the bond's coupon rate.
A bond's coupon rate is defined as:
the annual coupon payment of a bond divided by the bond's face value.
A corporate bond's coupon rate is the annual coupon payment divided by:
the bond's face value.
The discount rate that makes the present value of a bond's coupons and principal payment equal to its price is the:
yield to maturity.
