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Bonds - Practice Questions

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25 views2 pages

Bonds - Practice Questions

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inssoisto
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FINC 1302 Fundamentals of Financial Management : Bonds – Practice Questions

1. The coupon rate of a bond equals:


A) its yield to maturity.
B) a percentage of its price.
C) the maturity value.
D) a percentage of the par value.

2. Which of the following presents the correct relationship? As the coupon rate of a bond increases, the
bond’s:
A) face value increases.
B) current price decreases.
C) interest payments increase.
D) maturity date is extended.

3. What happens when a bond’s expected cash flows are discounted at a rate lower than the bond’s coupon
rate?
A) The price of the bond increases.
B) The coupon rate of the bond increases.
C) The par value of the bond decreases.
D) The coupon payments will be adjusted to the new discount rate.

4. How much does the $1,000 to be received upon a bond’s maturity in four years add to the bond’s price if
the appropriate discount rate is 6%?
A) $209.91
B) $260.00
C) $760.00
D) $792.09

5. The face value of a bond is received by the bondholder:


A) at the time of purchase.
B) annually.
C) whenever coupon payments are made.
D) at maturity.

6. How much should you pay for a $1,000 bond with 10% coupon, annual payments, and five years to
maturity if the interest rate is 12%?
A) $ 927.90
B) $ 981.40
C) $1,000.00
D) $1,075.82

7. How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that
matures in 5 years if the interest rate is 7%?
A) $696.74
B) $1,075.82
C) $1,082.00
D) $1,123.01

8. A bond’s face value can also be called its:


A) coupon payment.
B) present value.
C) default value.
D) par value

9. The discount rate that makes the present value of a bond’s payments equal to its price is termed the:
A) rate of return.
B) yield to maturity.
C) current yield.
D) coupon rate.

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10. What is the coupon rate for a bond with three years until maturity, a price of $1,053.46, and a yield to
maturity of 6%? Assume par value is $1,000.
A) 6%
B) 8%
C) 10%
D) 11%

11. What is the yield to maturity for a bond paying $100 annually that has six years until maturity and sells
for $1,000?
A) 6.0%
B) 8.5%
C) 10.0%
D) 12.5%

12. What happens to the price of a three-year bond with an 8% coupon when interest rates change from 8%
to 6%?
A) A price increase of $51.54
B) A price decrease of $51.54
C) A price increase of $53.47
D) No change in price

13. Which of the following factors will change when interest rates change?
A) The expected cash flows from a bond
B) The present value of a bond’s payments
C) The coupon payment of a bond
D) The maturity value of a bond

14. What happens to the coupon rate of a bond that pays $80 annually in interest if interest rates change
from 9% to 10%?
A) The coupon rate increases to 10%.
B) The coupon rate remains at 9%.
C) The coupon rate remains at 8%.
D) The coupon rate decreases to 8%.

15. If a four year bond with a 7% coupon and a 10% yield to maturity is currently worth $904.90, how much
will it be worth one year from now if interest rates are constant?
A) $ 904.90
B) $ 925.39
C) $ 947.93
D) $1,000.00

16. Which of the following is correct for a bond with a par value of $1,000 priced at $1,100 that has ten years
remaining until maturity, and a 10% coupon, with semiannual payments?
A) Each payment of interest equals $50.
B) Each payment of interest equals $55.
C) Each payment of interest equals $100.
D) Each payment of interest equals $110.

17. The yield curve depicts the current relationship between:


A) bond yields and default risk.
B) bond maturity and bond ratings.
C) bond yields and maturity.
D) promised yields and default premiums.

18. When the yield curve is upward-sloping, then:


A) short-maturity bonds offer high coupon rates.
B) long-maturity bonds are priced above par value.
C) short-maturity bonds yield less than long-maturity bonds.
D) long-maturity bonds increase in price when interest rates increase.

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