Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford)
Chapter 6 Bonds
6.1 Bond Terminology
1) The coupon value of a bond is the face value of the bond.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
2) A bond is said to mature on the date when the issuer repays its notional value.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
3) Which of the following best illustrates why a bond is a type of loan?
A) The issuers of bonds make regular payments to bondholders.
B) When a company issues a bond, the buyer of that bond becomes an owner of the issuing
company.
C) Funds raised are used to finance long-term projects.
D) When an investor buys a bond from an issuer, the investor is giving money to the issuer,
with the assurance that it will be repaid at a date in the future.
Answer: D
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
4) What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with
quarterly payments?
A) $3.75
B) $11.25
C) $22.50
D) $45.00
Answer: B
Explanation: B) $1000 × 0. = $11.25
Diff: 1 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
5) What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with
semiannual payments?
A) $150.00
B) $450
C) $900.00
D) $1800.00
1
Copyright © 2015 Pearson Education, Inc.
,Answer: B
Explanation: B) $10,000 × 0.09/2 = $450
Diff: 1 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
6) A corporate bond makes payments of $9.67 every month for ten years with a final
payment of $2009.67. Which of the following best describes this bond?
A) a 10-year bond with a face value of $2,000 and a coupon rate of 4.8% with monthly
payments
B) a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly
payments
C) a 10-year bond with a face value of $2,009.67 and a coupon rate of 4.8% with monthly
payments
D) a 10-year bond with a face value of $2,009.67 and a coupon rate of 5.8% with monthly
payments
Answer: B
Explanation: B) $9.67 × 12 / (2,009.67 - 9.67) = 5.802%
Diff: 1 Var: 1
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
7) An investor holds a Ford bond with a face value of $5000, a coupon rate of 8.5%, and
semiannual payments that matures on January 15, 2029. How much will the investor
receive on January 15, 2029?
A) $2606.25
B) $5000.00
C) $5212.50
D) $5425.00
Answer: C
Explanation: C) $5000 + $5000 × 0.085/2 = $5212.5
Diff: 1 Var: 26
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
2
Copyright © 2015 Pearson Education, Inc.
,8) Which of the following best shows the timeline for cash flows from a five-year bond with
a face value of $2,000, a coupon rate of 5.0%, and semiannual payments?
A) 0 1 2 3 4 5
+-----+-----+-----+-----+-----+
$100 $100 $100 $100 $2100
B) 0 1 2 3 9 10
+-----+-----+-----+--- . . . -----+-----+
$25 $25 $25 $25 $25
C) 0 1 2 3 9 10
+-----+-----+-----+--- . . . -----+-----+
$50 $50 $50 $50 $50
D) 0 1 2 3 9 10
+-----+-----+-----+--- . . . -----+-----+
$50 $50 $50 $50 $2050
Answer: D
Diff: 1 Var: 6
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
9) 0 1 2 3 59 60
+-----+-----+-----+--- . . . -----+-----+
$57.5 $57.5 $57.5 $57.5 $5057.5
A corporation issues a bond that generates the above cash flows. If the periods are of 3-
month intervals, which of the following best describes that bond?
A) a 15-year bond with a notional value of $5000 and a coupon rate of 4.6% paid quarterly
B) a 15-year bond with a notional value of $5000 and a coupon rate of 1.2% paid annually
C) a 30-year bond with a notional value of $5000 and a coupon rate of 3.5% paid
semiannually
D) a 60-year bond with a notional value of $5000 and a coupon rate of 4.6% paid quarterly
Answer: A
Diff: 1 Var: 6
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
3
Copyright © 2015 Pearson Education, Inc.
, 10) A university issues a bond with a face value of $5000 and a coupon rate of 4.41% that
matures on July 15, 2018. The holder of such a bond receives coupon payments of $110.25.
How frequently are coupon payments made in this case?
A) monthly
B) quarterly
C) semiannually
D) annually
Answer: C
Diff: 1 Var: 50+
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
11) Which of the following statements regarding bonds and their terms is FALSE?
A) Bonds are securities sold by governments and corporations to raise money from
investors today in exchange for a promised future payment.
B) By convention, the coupon rate is expressed as an effective annual rate.
C) Bonds typically make two types of payments to their holders.
D) The time remaining until the repayment date is known as the term of the bond.
Answer: B
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
12) A bond certificate includes ________.
A) the terms of the bond
B) the individual to whom payments will be made
C) the yield to maturity of the bond
D) the price of the bond
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
4
Copyright © 2015 Pearson Education, Inc.
Chapter 6 Bonds
6.1 Bond Terminology
1) The coupon value of a bond is the face value of the bond.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
2) A bond is said to mature on the date when the issuer repays its notional value.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
3) Which of the following best illustrates why a bond is a type of loan?
A) The issuers of bonds make regular payments to bondholders.
B) When a company issues a bond, the buyer of that bond becomes an owner of the issuing
company.
C) Funds raised are used to finance long-term projects.
D) When an investor buys a bond from an issuer, the investor is giving money to the issuer,
with the assurance that it will be repaid at a date in the future.
Answer: D
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
4) What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with
quarterly payments?
A) $3.75
B) $11.25
C) $22.50
D) $45.00
Answer: B
Explanation: B) $1000 × 0. = $11.25
Diff: 1 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
5) What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with
semiannual payments?
A) $150.00
B) $450
C) $900.00
D) $1800.00
1
Copyright © 2015 Pearson Education, Inc.
,Answer: B
Explanation: B) $10,000 × 0.09/2 = $450
Diff: 1 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
6) A corporate bond makes payments of $9.67 every month for ten years with a final
payment of $2009.67. Which of the following best describes this bond?
A) a 10-year bond with a face value of $2,000 and a coupon rate of 4.8% with monthly
payments
B) a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly
payments
C) a 10-year bond with a face value of $2,009.67 and a coupon rate of 4.8% with monthly
payments
D) a 10-year bond with a face value of $2,009.67 and a coupon rate of 5.8% with monthly
payments
Answer: B
Explanation: B) $9.67 × 12 / (2,009.67 - 9.67) = 5.802%
Diff: 1 Var: 1
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
7) An investor holds a Ford bond with a face value of $5000, a coupon rate of 8.5%, and
semiannual payments that matures on January 15, 2029. How much will the investor
receive on January 15, 2029?
A) $2606.25
B) $5000.00
C) $5212.50
D) $5425.00
Answer: C
Explanation: C) $5000 + $5000 × 0.085/2 = $5212.5
Diff: 1 Var: 26
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
2
Copyright © 2015 Pearson Education, Inc.
,8) Which of the following best shows the timeline for cash flows from a five-year bond with
a face value of $2,000, a coupon rate of 5.0%, and semiannual payments?
A) 0 1 2 3 4 5
+-----+-----+-----+-----+-----+
$100 $100 $100 $100 $2100
B) 0 1 2 3 9 10
+-----+-----+-----+--- . . . -----+-----+
$25 $25 $25 $25 $25
C) 0 1 2 3 9 10
+-----+-----+-----+--- . . . -----+-----+
$50 $50 $50 $50 $50
D) 0 1 2 3 9 10
+-----+-----+-----+--- . . . -----+-----+
$50 $50 $50 $50 $2050
Answer: D
Diff: 1 Var: 6
Skill: Analytical
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
9) 0 1 2 3 59 60
+-----+-----+-----+--- . . . -----+-----+
$57.5 $57.5 $57.5 $57.5 $5057.5
A corporation issues a bond that generates the above cash flows. If the periods are of 3-
month intervals, which of the following best describes that bond?
A) a 15-year bond with a notional value of $5000 and a coupon rate of 4.6% paid quarterly
B) a 15-year bond with a notional value of $5000 and a coupon rate of 1.2% paid annually
C) a 30-year bond with a notional value of $5000 and a coupon rate of 3.5% paid
semiannually
D) a 60-year bond with a notional value of $5000 and a coupon rate of 4.6% paid quarterly
Answer: A
Diff: 1 Var: 6
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
3
Copyright © 2015 Pearson Education, Inc.
, 10) A university issues a bond with a face value of $5000 and a coupon rate of 4.41% that
matures on July 15, 2018. The holder of such a bond receives coupon payments of $110.25.
How frequently are coupon payments made in this case?
A) monthly
B) quarterly
C) semiannually
D) annually
Answer: C
Diff: 1 Var: 50+
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
11) Which of the following statements regarding bonds and their terms is FALSE?
A) Bonds are securities sold by governments and corporations to raise money from
investors today in exchange for a promised future payment.
B) By convention, the coupon rate is expressed as an effective annual rate.
C) Bonds typically make two types of payments to their holders.
D) The time remaining until the repayment date is known as the term of the bond.
Answer: B
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
12) A bond certificate includes ________.
A) the terms of the bond
B) the individual to whom payments will be made
C) the yield to maturity of the bond
D) the price of the bond
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
4
Copyright © 2015 Pearson Education, Inc.
