Chapter 6

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

Bonds issued by the U.S. government A. are considered 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 default free

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

A. decreases, decreases

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

A. par value

Interest rate risk BLANK 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

Bond Ratings A. are provided solely by Moody's. B. only assess the possibility of default C. of B or higher are considered investment-grade ratings. D. consider interest rate risk. E. of C indicate an average level of risk.

B. only assess the possibility of default

Assume a discount bond has a few years until maturity and a positive yield. All else constant the bonds yield to maturity is A. directly related to the time to maturity. B. equal to the coupon rate. C. inversely related to the bonds market price D. unrelated to the time to maturity. E. less than its coupon rate.

C. inversely related to the bonds market price

All else constant, a bond will sell at BLANK when the yield to maturity is BLANK 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

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

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