Ch. 6 Finance Practice Questions

The lowest rating a bond can receive from Standard and Poor's and still be classified as an investment-quality bond is:

BBB

Which one of the following is the quoted price of a bond

Clean price

A bond's annual interest divided by its face value is referred to as...

Coupon rate

Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:

Debenture

Which one of the following is the price that an investor pays to purchase an outstanding bond?

Dirty price

The yield to maturity on a discount bond is:

Greater than both the current yield and the coupon rate

The written agreement that contains the specific details related to a bond issue is called the bond:

Indenture

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Inflation

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

Is selling at a premium

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Liquidity Premium

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Maturity

The rate of return an investor earns on a bond prior to adjusting for inflation is called the:

Nominal rate

A call provision grants the bond issuer the:

Option of repurchasing the bonds prior to maturity at a prespecified price.

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive

The bond must be priced at par

What is the principal amount of a bond that is repaid at the end of loan term called?

The face value

Which one of the following bonds is most apt to have the smallest liquidity premium?

Treasury bill

A debenture is:

an unsecured bond

A bond dealer sells at the _____ price and buys at the _____ price.

asked, bid

Bond ratings classify bonds based on:

default risk only

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

downward sloping

A bond's indenture agreement generally includes all of the following except the:

names of registered shareholders

The primary purpose of bond covenants is to

protect the bondholders

Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.

semiannual

All else held constant, the present value of a bond increases when the

yield to maturity decreases