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MGNT 3125_Chapter 7_reviewquestions

# MGNT 3125_Chapter 7_reviewquestions - MGNT 3125 Fall 2010...

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MGNT 3125 Fall 2010 Dr. Amine Khayati Chapter 7 Review questions 1- Face value and par value are synonymous terms. a- true b- false 2- To determine the value of a bond at a particular point in time we use the yield to maturity, which is the market interest rate at that time for bonds with similar features. a- true b- false 3- The value of a bond equals to the sum of the …………………….. of both the future……………. and the …………………… a- present value; coupon rate; face value b- future value; coupon payments; par value c- future value; coupon payments; face value d- present value; coupon payments; face value 4- A bond coupon payments are calculated based on the ………………… when the bond is issued. However, bond valuation requires that we determine the …………………., which is the market required rate of return on that bond at the time of the valuation. a- coupon rate; required rate b- coupon rate; yield to maturity c- default risk; coupon rate d- nominal rate; real rate 5- All other things being equal, the longer the time to maturity, the…………… interest rate risk, and the lower the coupon rate, the …………………. the interest rate risk. a- lower; lower b- lower; greater c- greater; lower d- greater; greater 6- Among the following bonds, which one has a price that is most sensitive to changes in interest rate. a- a 30-year, zero coupon b- a 30-year, 5 percent coupon bond c- a 10-year, 15 percent coupon bond d- a 5-year callable bond 1

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7- The yield to maturity for a bond is the bond’s ……………… When the market value of the bond is equal to its face value, the yield to maturity should be equal to the …………….. a- coupon rate; rate of return b- rate of return; coupon rate c- default rate; rate of return d- rate of return; coupon payment 8- If a bond is ……………., the company’s registrar mails the interest payment to the owner of record. However, ………………….. bonds have dated coupons attached to them; the bondholder has to detach a coupon and mail to the firm which then makes the interest payment. a- bearer; registered b- premium; discount c- registered; bearer d- discount; premium 9- A premium bond is a bond that: a- is selling for less than par value b- has a par value smaller than the face value c- is a bond that will mature in less than 12 months d- has a market value greater than the par value 10- When the yield to maturity is lower than the coupon rate, the bond should be: a- discount bond b- par value bond c- perpetuity d- premium bond 11- A bond selling for less than the face value is a ……………….; and a bond with the yield to maturity higher than the coupon rate is …………………….. a- discount bond; premium bond b- callable bond, discount bond c- discount bond; discount bond d- risk-free bond; premium bond 12- The written agreement between the corporation and the lender detailing the terms of the debt issue is called the bond: a- security agreement b- bond mortgage c- indenture d- debenture 2
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