Chap007[1] - Chapter 07 - Interest Rates and Bond Valuation...

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Unformatted text preview: Chapter 07 - Interest Rates and Bond Valuation Chapter 07 Interest Rates and Bond Valuation Answer Key Multiple Choice Questions 1. Mary just purchased a bond which pays $60 a year in interest. What is this $60 called? A. coupon B. face value C. discount D. call premium E. yield Refer to section 7.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.1 Topic: Coupon 2. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. coupon B. face value C. discount D. yield E. dirty price Refer to section 7.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.1 Topic: Face value 7-1 Chapter 07 - Interest Rates and Bond Valuation 3. A bond's coupon rate is equal to the annual interest divided by which one of the following? A. call price B. current price C. face value D. clean price E. dirty price Refer to section 7.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.1 Topic: Coupon rate 4. The specified date on which the principal amount of a bond is payable is referred to as which one of the following? A. coupon date B. yield date C. maturity D. dirty date E. clean date Refer to section 7.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.1 Topic: Maturity 7-2 Chapter 07 - Interest Rates and Bond Valuation 5. Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following? A. coupon rate B. face rate C. call rate D. yield to maturity E. interest rate Refer to section 7.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.1 Topic: Yield to maturity 6. The current yield is defined as the annual interest on a bond divided by which one of the following? A. coupon B. face value C. market price D. call price E. dirty price Refer to section 7.1 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.1 Topic: Current yield 7-3 Chapter 07 - Interest Rates and Bond Valuation 7. An indenture is: A. another name for a bond's coupon. B. the written record of all the holders of a bond issue. C. a bond that is past its maturity date but has yet to be repaid. D. a bond that is secured by the inventory held by the bond's issuer. E. the legal agreement between the bond issuer and the bondholders. Refer to section 7.2 AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Objective: 7-1 Section: 7.2 Topic: Indenture 8. Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. at par....
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Chap007[1] - Chapter 07 - Interest Rates and Bond Valuation...

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