C708 V4 Unit 5 Module Quizzes: Module
10 Bond and Bond Valuation; Module 11:
Understanding Equity and Stock
Valuation; Module 12: Capital Budgeting
Quiz
A floating rate note
Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference
rate of interest, such as LIBOR or Euribor. For example, the coupon may be defined as
three month USD LIBOR + 0.20%. The coupon rate is recalculated periodically, typically
every one or three months. Corrrect answer- A bond pays a coupon rate equal to the
LIBOR rate plus 0.30%. The coupon rate is recalculated every three months. What type
of bond is this?
Zero-coupon bond
Zero-coupon bonds are those that pay no coupons and thus have a coupon rate of 0%.
Such bonds make only one payment-the payment of the face value on the maturity
date. Normally, to compensate the bondholder for the time value of money, the price of
a zero-coupon bond will always be less than its face value on any date before the
maturity date. The bondholder receives the full principal amount on the redemption
date. An example of zero coupon bonds is Series E savings bonds issued by the U.S.
government Corrrect answer- A bond makes only one payment—the payment of the
face value on the maturity date. The bond is sold at a discount. What type of bond is
this?
A bill
U.S. Treasury bills are short term instruments with maturities between 1-5 years.
Corrrect answer- A US Treasury security matures in 4 years. What type of treasury is it?
A note
U.S. Treasury notes are medium-term instruments with maturities between 6-12 years.
Corrrect answer- A US Treasury security matures in 7 years. What type of security is it?
Investors
Issuers sell bonds or other debt instruments to investors in the bond market to fund the
operations of their organizations. Firms like bonds because typically they help defray
10 Bond and Bond Valuation; Module 11:
Understanding Equity and Stock
Valuation; Module 12: Capital Budgeting
Quiz
A floating rate note
Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference
rate of interest, such as LIBOR or Euribor. For example, the coupon may be defined as
three month USD LIBOR + 0.20%. The coupon rate is recalculated periodically, typically
every one or three months. Corrrect answer- A bond pays a coupon rate equal to the
LIBOR rate plus 0.30%. The coupon rate is recalculated every three months. What type
of bond is this?
Zero-coupon bond
Zero-coupon bonds are those that pay no coupons and thus have a coupon rate of 0%.
Such bonds make only one payment-the payment of the face value on the maturity
date. Normally, to compensate the bondholder for the time value of money, the price of
a zero-coupon bond will always be less than its face value on any date before the
maturity date. The bondholder receives the full principal amount on the redemption
date. An example of zero coupon bonds is Series E savings bonds issued by the U.S.
government Corrrect answer- A bond makes only one payment—the payment of the
face value on the maturity date. The bond is sold at a discount. What type of bond is
this?
A bill
U.S. Treasury bills are short term instruments with maturities between 1-5 years.
Corrrect answer- A US Treasury security matures in 4 years. What type of treasury is it?
A note
U.S. Treasury notes are medium-term instruments with maturities between 6-12 years.
Corrrect answer- A US Treasury security matures in 7 years. What type of security is it?
Investors
Issuers sell bonds or other debt instruments to investors in the bond market to fund the
operations of their organizations. Firms like bonds because typically they help defray
