Question

1. The face value of the bond is paid at the maturity of the bond. True or false?

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

		Yield to Maturity (YTM)
		Coupon Rate
		Face Value
		None

3. Coupon payments are determined by multiplying face value of the bond with the coupon rate. True or false?

4. 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

Answers-

Q1)

The statement is True.

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

Q 2)

The correct option is Yield to Maturity (YTM).

YTM is discount rate while calculating the bond price.

The other Options are incorrect.
The Coupon rate is the rate that is used in payments that are made annually or semiannually for coupon bonds.
The Face value is the Par value that is paid at maturity.

Q 3)

The statement is True.
Coupon payments ($) = Coupon rate (%) x Face value ($)

Q 4)

The correct option is third Option.

Both the level of risk of the investment (default premium) and the length of the investment (maturity premium).

Interest rate = Real risk-free interest rate + Inflation premium + Default risk premium + Liquidity premium + Maturity premium