FIN 300 Concept Questions || 100% no Error.
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?
a) Coupon
b) Face value
c) Correct
d) Discount
e) Yield
f) Dirty price correct answers Face Value
A bond's principal is repaid on the ____ date.
A)coupon
B) yield
C) maturity
D) Correct
E) dirty
F) clean correct answers Maturity
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:
A) coupon rate.
B) face rate.
C) call rate.
D) yield to maturity.
,E) Correct
F) current yield. correct answers Yield to Maturity
The current yield is defined as the annual interest on a bond divided by the:
A) coupon rate.
B) face value.
C) market price.
D) call price.
F) par value. correct answers Market Price
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of
interest increases, then the:
A) coupon rate will also increase.
B) current yield will decrease.
C) yield to maturity will be less than the coupon rate.
D) market price of the bond will decrease.
E) coupon payment will increase. correct answers Market price of the bond will decrease
An investment had a nominal return of 11.2 percent last year. The inflation rate was 3.4 percent.
What was the real return on the investment?
A) 11.00%
B) 7.54%
D) 14.98%
E) 8.38%
F) 7.01% correct answers 7.54%
, Explanation
r = [(1 + .112)/(1 + .034)] − 1 = .0754, or 7.54%
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
A) a premium; less than
B) a premium; equal to
C) a discount; less than
D) a discount; higher than
E) par; less than correct answers a discount; less than
A newly issued bond has a coupon rate of 7 percent and semiannual interest payments. The
bonds are currently priced at par. The effective annual rate provided by these bonds must be:
A) 3.5 percent.
B) greater than 3.5 percent but less than 7 percent.
C) 7 percent.
D) greater than 7 percent.
E) less than 3.5 percent. correct answers Greater than 7%
Callable bonds generally:
A) grant the bondholder the option to call the bond any time after the deferment period.
B) are callable at par as soon as the call-protection period ends.
C) are called when market interest rates increase.
D) are called within the first three years after issuance.
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?
a) Coupon
b) Face value
c) Correct
d) Discount
e) Yield
f) Dirty price correct answers Face Value
A bond's principal is repaid on the ____ date.
A)coupon
B) yield
C) maturity
D) Correct
E) dirty
F) clean correct answers Maturity
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:
A) coupon rate.
B) face rate.
C) call rate.
D) yield to maturity.
,E) Correct
F) current yield. correct answers Yield to Maturity
The current yield is defined as the annual interest on a bond divided by the:
A) coupon rate.
B) face value.
C) market price.
D) call price.
F) par value. correct answers Market Price
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of
interest increases, then the:
A) coupon rate will also increase.
B) current yield will decrease.
C) yield to maturity will be less than the coupon rate.
D) market price of the bond will decrease.
E) coupon payment will increase. correct answers Market price of the bond will decrease
An investment had a nominal return of 11.2 percent last year. The inflation rate was 3.4 percent.
What was the real return on the investment?
A) 11.00%
B) 7.54%
D) 14.98%
E) 8.38%
F) 7.01% correct answers 7.54%
, Explanation
r = [(1 + .112)/(1 + .034)] − 1 = .0754, or 7.54%
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
A) a premium; less than
B) a premium; equal to
C) a discount; less than
D) a discount; higher than
E) par; less than correct answers a discount; less than
A newly issued bond has a coupon rate of 7 percent and semiannual interest payments. The
bonds are currently priced at par. The effective annual rate provided by these bonds must be:
A) 3.5 percent.
B) greater than 3.5 percent but less than 7 percent.
C) 7 percent.
D) greater than 7 percent.
E) less than 3.5 percent. correct answers Greater than 7%
Callable bonds generally:
A) grant the bondholder the option to call the bond any time after the deferment period.
B) are callable at par as soon as the call-protection period ends.
C) are called when market interest rates increase.
D) are called within the first three years after issuance.
