FIN 3000 Quiz 3

Current Yield is the bond's annual coupon divided by its yield to maturity.

False Current Yield is the bond's annual coupon divided by its price.

Municipal bonds are taxable for federal, state and local taxes.

False Municipal bonds are exempt for federal taxes and from some state and local taxes, especially if you live in the state in which the bond is issued.

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?

Coupon

When short-term rates are higher than long-term rates, we say it is __________________.

Downward sloping

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?

Face Value

A bond's principal is repaid on the ____ date.

Maturity

The term structure of interest rates tells us what _________ interest rate are on default-free, pure discount bonds of all maturities.

Nominal The term structure of interest rates tells us what nominal interest rate are on default-free, pure discount bonds of all maturities. Long Term Rates > Short Term Rates - upward sloping term structure Long Term Rates < Short Term Rates - downward sloping term structure

The term structure of interest rates includes all of the following basic components, except:

Weighted Average Cost of Capital

The bond market requires a return of 9.8 percent on the 5-year bonds issued by JW Industries. The 9.8 percent is referred to as the:

Yield to maturity (YTM)