Chapter 7 (Exam 2)

If expected inflation rises, market interest rates will rise. How will this impact the prices and yields of existing bonds? A. The prices of existing bonds will fall and the yields will rise. B. The prices of existing bonds will rise and the yields will fall. C. The prices of existing bonds will fall and the yields will fall. D. The prices of existing bonds will rise and the yields will rise.

A. The prices of existing bonds will fall and the yields will rise.

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment A. coupon B. discount C. call premium D. face value

A. coupon

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the: A. face value. B. discount. C. yield. D. dirty price.

A. face value.

The present value of a bond or other debt instrument is A. the value today of all the future cash flows from this investment. B. None of the above. C. the discount rate. D. the amount to which this investment will grow after earning interest.

A. the value today of all the future cash flows from this investment.

The price of a 12% semiannual coupon bond with five years to maturity and a yield to maturity of 8% is A. $1,000.00 B. $852.80 C. $1,162.22 D. $1,104.84

C. $1,162.22

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? A. Senior B. Par value C. Callable D. Unsecured

C. Callable

Chamberlain Company wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 10.8 percent coupon bonds on the market that sell for $939.13, make semiannual payments, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Assume a par value of $1,000. A. 11.30% B. 11.50% C. 5.80% D. 11.60%

D. 11.60%

A newly issued bond has a coupon rate of 5 percent and semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be: A. 5 percent. B. greater than 2.5 percent but less than 5 percent. C. less than 2.5 percent. D. greater than 5 percent.

D. greater than 5 percent.

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the: A. call rate. B. face rate. C. coupon rate. D. yield to maturity.

D. yield to maturity.

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the: A. current yield. B. call rate. C. face rate. D. yield to maturity.

D. yield to maturity.