Question

The face value of the bond is paid at the maturity of the bond.

True

False

Which of the following is used as a discount rate while calculating the bond price?

		Yield to Maturity (YTM)
		Coupon Rate
		Face Value
		None

Coupon payments are determined by multiplying face value of the bond with the coupon rate.

True

False

Which of the following explains the differences in interest rates?

		The length of the investment (maturity premium).
		The level of risk of the investment (default premium).
		Both the level of risk of the investment (default premium) and the length of the investment (maturity premium).
		None

Answer 1

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Answer:

1)

For bonds, face value is the amount paid to the holder at maturity, which is normally $1,000

Hence True

2)

Yield to maturity is the discount rate which is used while calculating the bond price

3)

Coupon rate is determined for a bond issued with a face value of $1,000 that pays a $25 coupon semiannually has a coupon rate of 5% Hence True

4)

Yes interest rate differences can be determined by the time difference - long term and short term bonds, and the risk involved in the bonds

Hence both level of risk and length of maturity