# Finance Quiz 3 - Bond and Its Valuation

## Quiz by Jamal Haider Naqvi

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10 questions
• 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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