Question

Question 1

The price of an outstanding bond will decline when

Select one:

a. the current level of interest rate increases.

b. there is an increase in the demand for the bond.

c. the current level of interest rate declines.

d. the yield is equal to the coupon rate.

Question 2

When a bond sells below its par value, it is called

Select one:

a. par value bond.

b. discount from par.

c. market value bond.

d. premium above par.

Question 3

The price of the bond will decline when

Select one:

a. risk premium decline.

b. interest rates decline.

c. interest rates increase.

d. the money supply decline.

Question 4

The time value of money

Select one:

a. is more important to the lender than the borrower.

b. is not important in determining value of securities.

c. represents the value of property as time passes by due to depreciation and depletion.

d. represents a trade off between purchasing power today for purchasing power in the future.

Question 5

The price of the bond is the present of future payments, including the ____ and ____.

Select one:

a. yield, face value on maturity

b. coupon payments, face value on maturity

c. coupon payments, current price

d. yield, current price

Answer #1

**1. Option (a) is correct**

The price of an outstanding bond will decline when the current level of interest rate increases. There is an inverse relationship between bond price and interest rates.

**2. Option (b) is correct**

When a bond sells below its par value, it is called discount from par.

**3. Option (c) is correct**

The price of the bond will decline when interest rate increases. There is an inverse relationship between bond price and interest rates.

**4. Option (d) is correct**

The time value of money represents a trade off between purchasing power today for purchasing power in the future.

**5. Option (b) is correct**

The price of the bond is the present value of future payments including the coupon payments and face value on maturity.

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a. It gives the bond issuer the right buy the bond back from the
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b. It gives the bond holder the right to sell the bond back to
the bond issuer prior to maturity.
c. Both of the above.
d. None of the above.
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A bond with an annual coupon of $100 originally sold at par for
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C. At a premium to par.
D. Face value.
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A corporate bond with a 8 percent coupon was issued last year.
Which one of these would apply to this bond today if the yield to
maturity is 7 percent?
Select one:
a.
The current yield drops below the yield to maturity.
b.
The coupon rate has decreased to 7 percent.
c.
The bond is selling at par value.
d.
The bond is currently selling at a premium.
e.
The current yield exceeds the coupon rate.

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