FIN 701 - Module 3*1 Choi

Municipal bonds:

pay interest that is federally tax-free.

A deferred call provision:

prohibits the bond issuer from redeeming callable bonds prior to a specified date

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

Coupon

Which one of these equations applies to a bond that currently has a market price that exceeds par value?

Decreasing the time to maturity increases the price of a discount bond, all else constant.

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

Which one of the following statements is correct?

The real rate must be less than the nominal rate given a positive rate of inflation.

Which one of these equations applies to a bond that currently has a market price that exceeds par value?

Yield to maturity < Coupon rate

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the:

call premium

The price sensitivity of a bond increases in response to a change in the market rate of interest as the:

coupon rate decreases and the time to maturity increases.

A sinking fund is managed by a trustee for which one of the following purposes?

early bond redemption

A zero coupon bond:

has more interest rate risk than a comparable coupon bond.

Road Hazards has 12-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can actually be defined as being issued:

in registered form

Which of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

interest rate risk

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

spread

A highly illiquid bond that pays no interest but might entitle its holder to rental income from an asset is most apt to be a:

sukuk

The yields on a corporate bond differ from those on a comparable Treasury security primarily because of:

taxes and default risk