MCQ with Answers about Bonds and Bonds Value

  1. The stated interest payment, in dollars, made on a bond each period is called the bond:

A) Coupon

B) Face value.

C) Maturity

D) Yield to maturity.

E) Coupon rate.

Answer: A


2. The principal amount of a bond that is repaid at the end of the loan term is called the bond’s:
A) Coupon

B) Face value

C) Maturity

D) Yield to maturity

E) Coupon rate.

Answer: B


3. The rate of return required by investors in the market for owning a bond is called the:
A) Coupon

B) Face value

C) Maturity

D) Yield to maturity

E) Coupon rate.

Answer: D


4. The annual coupon of a bond divided by its face value is called the bond:
A) Coupon

B) Face value

C) Maturity

D) Yield to maturity

E) Coupon rate

Answer: E


5. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a:
A) Par bond

B) Discount bond

C) Premium bond

D) Zero-coupon bond

E) Floating rate bond.

Answer: B


6. A bond with a face value of $1,000 that sells for more than $1,000 in the market is called a:
A) Par bond.
B) Discount bond.
C) Premium bond.
D) Zero-coupon bond.
E) Floating rate bond.

Answer: C


7. The long-term bonds issued by the United States government are called:
A) Treasury bonds.
B) Municipal bonds.
C) Floating rate bonds.
D) Junk bonds.
E) Zero-coupon bonds.

Answer: A


8. A bond that makes no coupon payments (and thus is initially priced at a deep discount to par value) is called a _______ bond.
A) Treasury
B) municipal
C) floating rate
D) junk
E) zero-coupon

Answer: E


9. A bond which, at the election of the holder, can be swapped for a fixed number of shares of common stock at any time prior to the bond’s maturity is called a _____________ bond.
A) zero-coupon

B) callable

C) putable

D) convertible

E) warrant

Answer: D


10. The annual coupon payment of a bond divided by its market price is called the:
A) Coupon rate.

B) Current yield.

C) Yield to maturity.

D) Bid-ask spread.

E) Capital gains yield.

Answer: B


11. The price a dealer is willing to accept for selling security to an investor is called the:
A) Equilibrium price.

B) Auction price.

C) Bid price.

D) Ask price.

E) Bid-ask spread.

Answer: D


12. A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 10 years ago. The bond currently sells for $1,000 and has 8 years remaining to maturity. This bond’s ______________ must be 10%.

I. Yield to maturity

II. Market premium

III.  coupon rate

A) I only

B) I and II only

C) III only

D) I and III only

E) I, II and III

Answer: D


13. If you divide a bond’s annual coupon payment by its current yield you get the ___________.
A) yield to maturity

B) investors’ required rate of return

C) annual coupon rate

D) cost of capital

E) bond price

Answer: E


14. Which of the following statements regarding bond pricing is true?
A) The lower the discount rate, the more valuable the coupon payments are today.

B) Bonds with high coupon payments are generally (all else the same) more sensitive to changes in interest rates than bonds with lower coupon payments.

C) When market interest rates rise, bond prices will also rise, all else the same.

D) Bonds with short maturities are generally (all else the same) more sensitive to changes in interest rates than bonds with longer maturities.

E) All else the same, bonds with larger coupon payments will have a lower price today.

Answer: A


14. Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year and a face value of $1000. If the yield to maturity on similar bonds is 8%, this bond should:
A) Sell for the same price as a similar bond regardless of their respective maturities.
B) Sell at a premium.
C) Sell at a discount.
D) Sell for either a premium or a discount but it’s impossible to tell which.
E) Sell for par value.

Answer: B

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