Chapter 8 Finance Quiz and HW

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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.


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