Fin_pq5 - University of Houston-Victoria FIN 6352 Financial...

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FIN 6352 Financial Management FMQuiz05 Dr. Xavier Garza Gómez University of Houston-Victoria FIN 6352 Financial Management Review Quiz for Chapter 5 - Bonds, Bond Valuation, and Interest Rates True-False 1. A zero coupon bond is a bond that pays no interest and is offered (and subsequently sells) at par, therefore providing compensation to investors in the form of capital appreciation. a. True b. False 2. A junk bond is a high risk, high yield debt instrument typically used to finance a leve- raged buyout or a merger, or to provide financing to a company of questionable financial strength. a. True b. False 3. If the required rate of return on a bond is greater than its coupon interest rate (and r d re- mains above the coupon rate), the market value of that bond will always be below its par value until the bond matures, at which time its market value will equal its par value. (Accrued interest between interest payment dates should not be considered when answer- ing this question.) a. True b. False Multiple Choice: Concepts 4. A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is cur- rently selling at par ($1,000). Which of the following statements is most correct? a. The bond’s yield to maturity is 9 percent. b. The bond’s current yield is 9 percent. c. If the bond’s yield to maturity remains constant, the bond’s price will remain at par. d. Both answers a and c are correct. e. All of the answers above are correct. 5. Which of the following statements is most correct? a. The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B. b. If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity. c. If a coupon bond is selling at par, its current yield equals its yield to maturity.
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FIN 6352 Financial Management FMQuiz05 Dr. Xavier Garza Gómez d. Both a and b are correct.
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Fin_pq5 - University of Houston-Victoria FIN 6352 Financial...

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