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Finance Quiz 3 - Bond and Its Valuation

Quiz by Jamal Haider Naqvi

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10 questions
Show answers
  • Q1
    What is the coupon rate of a bond?
    The face value of the bond
    The annual interest rate the bond pays
    The date when the bond matures
    The market price of the bond
    60s
  • Q2
    What happens to the price of a bond when interest rates increase?
    The price of the bond decreases
    The bond becomes worthless
    The price of the bond increases
    The coupon rate of the bond decreases
    60s
  • Q3
    What is the difference between a premium bond and a discount bond?
    A premium bond has a market price above its face value, while a discount bond has a market price below its face value
    A premium bond is less risky than a discount bond
    A premium bond pays a higher coupon rate than a discount bond
    A premium bond has a longer maturity than a discount bond
    60s
  • Q4
    Which of the following is NOT a factor that affects the price of a bond?
    The market interest rate
    The coupon rate
    The issuer's favorite sports team
    The time to maturity
    60s
  • Q5
    What is the relationship between bond prices and interest rates?
    As interest rates rise, bond prices rise, and vice versa
    As interest rates rise, bond prices fall, and vice versa
    Bond prices and interest rates are unrelated
    Bond prices may rise or fall depending on interest rates
    60s
  • Q6

    A call provision gives bondholders the right to demand, or "call for," repayment of a bond.  Typically, companies call bonds if interest rates rise and do not call them if interest rates decline.

    false
    true
    True or False
    30s
  • Q7

    A 10-year corporate bond has an annual coupon of 9%.  The bond is currently selling at par ($1,000).  Which of the following statements is CORRECT?

    If the bond’s yield to maturity declines, the bond will sell at a discount.

    The bond’s yield to maturity is above 9%.

    The bond’s current yield is above 9%.

    The bond’s expected capital gains yield is zero.

    60s
  • Q8

    Which of the following statements is CORRECT?

    All else equal, high-coupon bonds have less reinvestment risk than low-coupon bonds.

    All else equal, long-term bonds have less price risk than short-term bonds.

    All else equal, short-termbonds have less reinvestment risk than long-term bonds.

    All else equal, low-coupon bonds have less price risk than high-coupon bonds.

    60s
  • Q9

    All else equal, senior debt generally has a lower yield to maturity than subordinated debt.

    true
    false
    True or False
    30s
  • Q10

    If a coupon bond is selling at par, its capital gain  yield equals Zero.

    true
    false
    True or False
    30s

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