1974 - Review for Exam 2 Instructions: Please read...

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Review for Exam 2 Instructions: Please read carefully The exam will have 20 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation questions. The calculation questions will be similar to those in the quizzes, assignment, and review. However, the concept questions will be related to any topic we have covered in the class. The concept questions in the review are only some sample questions. You should NOT study only topics in the review. For the work problems, you need to solve the problems without knowing the possible answers. The questions will be similar to those in the quizzes, assignment, and review except that the possible solutions are not given. You can bring a formula sheet to the exam.
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Chapter 7 COUPON 1. The stated interest payment, in dollars, made on a bond each period is called the bond’s: a. coupon. b. face value. c. maturity. d. yield to maturity. e. coupon rate. DISCOUNT BONDS 2. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a _____ bond. a. par b. discount c. premium d. zero coupon e. floating rate DEBENTURES 3. The unsecured debts of a firm with maturities greater than 10 years are most literally called: a. unfunded liabilities. b. sinking funds. c. bonds. d. notes. e. debentures. PROTECTIVE COVENANT 4. Parts of the indenture limiting certain actions that might be taken during the term of the loan to protect the interests of the lender are called: a. trustee relationships. b. sinking funds provisions. c. bond ratings. d. deferred call provisions. e. protective covenants. REAL RATES 5. Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates. a. real b. nominal c. effective d. stripped e. coupon BOND PRICES AND YIELDS 6. All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate. a. a premium; higher than b. a premium; equal to c. at par; higher than d. at par; less than e. a discount; higher than
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INTEREST RATE RISK 7. Which one of the following statements is correct concerning interest rate risk as it relates to bonds, all else equal? a. The shorter the time to maturity, the greater the interest rate risk. b. The higher the coupon rate, the greater the interest rate risk. c. For a bond selling at par value, there is no interest rate risk. d. The greater the number of semiannual interest payments, the greater the interest rate risk. e. The lower the amount of each interest payment, the lower the interest rate risk. INTEREST RATE RISK 8. You own a bond that has a 7 percent coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5 percent, then you would expect: a. the bond issuer to increase the amount of each interest payment on these bonds. b.
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This note was uploaded on 04/06/2011 for the course ECON 355 taught by Professor Smith during the Spring '11 term at Elizabethtown.

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1974 - Review for Exam 2 Instructions: Please read...

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