Chap 006
Chap 006
Chap 006
Multiple Choice Questions 1. A zero coupon bond refers to a bond which: A) Does not pay any coupon payments because the issuer is in default. B) Promises a single future payment. C) Pays coupons only once a year. D) Pays coupons only if the bond price is above face value. Answer: B LOD: 1 Page: 120 A-Head: Bond Prices. 2. A consol is: A) Another name for a zero coupon bond. B) A bond with a maturity date exceeding 10 years. C) A bond which makes periodic interest payments forever but never matures. D) A form of a bond that is issued quite often by the U.S. Treasury. E) c and d Answer: C LOD: 1 Page: 120 A-Head: Bond Prices. 3. A pure discount bond is also known as: A) A consol. B) A fixed payment loan. C) A coupon bond. D) A zero coupon bond. E) None of the above. Answer: D LOD: 1 Page: 120 A-Head: Bond Prices. 4. The most common form of a zero-coupon bond found in the United States is: A) AAA rated corporate bonds. B) U.S. Treasury bills. C) 30 year U.S. Treasury bonds. D) Municipal bonds. Answer: B LOD: 1 Page: 120 A-Head: Bond Prices.
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D Q u
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a) Expected Inflation increases. b) The return on bonds rises relative to other assets. c) The federal government deficit increases? LOD: 2 Page: 131 Answer: If expected inflation increases the demand for bonds will decrease and the supply will increase. Both of these will reinforce each other, causing the bond prices to fall and interest rates to increase. If the return on bonds rises relative to other assets, the bond demand curve will shift to the right, causing bond prices to increase and interest rates to decrease. Finally, if the federal budget deficit increases, the bond supply curve will shift to the right, causing the bond prices to fall and interest rates to increase. A-Head: The Bond Market and the Determination of Interest Rates.
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