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Tutorial 13

The document is a tutorial on bonds that contains 16 multiple choice questions about key bond concepts and calculations. It covers topics such as determining the value of a bond given its coupon rate and required rate of return, whether a bond is selling at a premium or discount, the relationships between bond prices, yields and interest rates, defining terms like face value, coupon, maturity, yield to maturity, and identifying the types of bonds such as zero-coupon, premium, discount.

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42 views5 pages

Tutorial 13

The document is a tutorial on bonds that contains 16 multiple choice questions about key bond concepts and calculations. It covers topics such as determining the value of a bond given its coupon rate and required rate of return, whether a bond is selling at a premium or discount, the relationships between bond prices, yields and interest rates, defining terms like face value, coupon, maturity, yield to maturity, and identifying the types of bonds such as zero-coupon, premium, discount.

Uploaded by

amirrrfrrr
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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TUTORIAL 13 : BONDS

1. What's the value to you of a $1,000 face-value bond with an 8% coupon rate
when your required rate of return is 15 percent?

A) More than its face value.


B) Less than its face value.
C) $1,000.
D) True.

2. When the market's required rate of return for a particular bond is much less
than its coupon rate, the bond is selling at:

A) a premium.
B) a discount
C) cannot be determined without more information.
D) face value

3. If a bond sells at a high premium, then which of the following relationships


hold true? (P0 represents the price of a bond and YTM is the bond's yield to
maturity.)

A) P0 < par and YTM > the coupon rate.


B) P0 > par and YTM > the coupon rate
C) P0 > par and YTM < the coupon rate.
D) P0 < par and YTM < the coupon rate.

4. Interest rates and bond prices

A) move in the same direction


B) move in opposite directions.
C) sometimes move in the same direction, sometimes in opposite directions.
D) have no relationship with each other (i.e., they are independent).
5. The expected rate of return on a bond if bought at its current market
price and held to maturity.

A) yield to maturity
B) current yield
C) coupon yield
D) capital gains yield

6. The stated interest payment, in dollars, made on a bond each period is called
the bond:

A) Coupon
B) Face value.
C) Maturity
D) Yield to maturity.
E) Coupon rate.

7. The principal amount of a bond that is repaid at the end of the loan term is
called the bond’s:

A) Coupon
B) Face value.
C) Maturity
D) Yield to maturity.
E) Coupon rate.

8. The rate of return required by investors in the market for owning a bond is
called the:

A) Coupon
B) Face value.
C) Maturity
D) Yield to maturity.
E) Coupon rate.
9. The annual coupon of a bond divided by its face value is called the bond:

A) Coupon
B) Face value.
C) Maturity
D) Yield to maturity.
E) Coupon rate.

10. A bond with a face value of $1,000 that sells for less than $1,000 in the
market is called a:

A) Par bond.
B) Discount bond.
C) Premium bond.
D) Zero-coupon bond.
E) Floating rate bond.

11. A bond with a face value of $1,000 that sells for more than $1,000 in
the market is called a:

A) Par bond.
B) Discount bond.
C) Premium bond.
D) Zero-coupon bond.
E) Floating rate bond.
12. A bond that makes no coupon payments (and thus is initially priced at a deep
discount to par value) is called a bond.

A) Treasury
B) municipal
C) floating rate
D) junk
E) zero-coupon

13. The annual coupon payment of a bond divided by its market price is called
the:

A) Coupon rate.
B) Current yield.
C) Yield to maturity.
D) Bid-ask spread.
E) Capital gains yield.

14. A bond with a face value of $1,000 has annual coupon payments of $100 and
was issued 10 years ago. The bond currently sells for $1,000 and has 8 years
remaining to maturity. This bond’s must be 10%.

I. Yield to maturity

II. Market premium

III. coupon rate

A) I only

B) I and II only

C) III only

D) I and III only

E) I, II and III
15. If you divide a bond’s annual coupon payment by its current yield you get the
.

A) yield to maturity
B) investors’ required rate of return
C) annual coupon rate
D) cost of capital
E) bond price

16. Your broker offers you the opportunity to purchase a bond with coupon
payments of $90 per year and a face value of $1000. If the yield to maturity
on similar bonds is 8%, this bond should:

A) Sell for the same price as the similar bond regardless of their respective
maturities.
B) Sell at a premium.
C) Sell at a discount.
D) Sell for either a premium or a discount but it’s impossible to tell which.
E) Sell for par value.

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