Question: Which of the following statements is CORRECT?
Answer Choices:
a. Bond A’s current yield is greater than 8%.
b. Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price.
c. Both bonds have the same price today, and the price of each bond is expected to remain constant until the bonds mature.
Answer: b. Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If a coupon bond is selling at par, its current yield equals its yield to maturity.
b. If rates fall after its issue, a zero coupon bond could trade at a price above its maturity (or par) value.
c. If rates fall rapidly, a zero coupon bond’s expected appreciation could become negative.
d. If a firm moves from a position of strength toward financial distress…
e. If a bond is selling at a premium, this implies that its yield to maturity exceeds its coupon rate.
Answer: a. If a coupon bond is selling at par, its current yield equals its yield to maturity.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If the Federal Reserve unexpectedly announces that it expects inflation to increase…
b. The total yield on a bond is derived from dividends plus changes in the price…
c. Bonds are generally regarded as being riskier than common stocks…
d. Bonds issued by larger companies always have lower yields to maturity…
e. The market price of a bond will always approach its par value as its maturity date approaches…
Answer: e. The market price of a bond will always approach its par value as its maturity date approaches…
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity…
b. If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates dropped to YTM = 5%…
c. Other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
d. Other things held constant, a callable bond would have a lower required return than a noncallable bond…
e. Bonds are exposed to both reinvestment risk and price risk…
Answer: b. If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates dropped to YTM = 5%…
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Two bonds same maturity and coupon rate, one callable, one not. Price difference is greater if interest rate < coupon.
b. Callable bond should sell at higher price than noncallable.
c. Issuing callable bonds lets firms raise funds earlier.
d. Callable bond’s life = noncallable bond’s life.
e. Upward sloping curve means lower required return on callable.
Answer: a. Two bonds same maturity and coupon rate, one callable, one not. Price difference is greater if interest rate < coupon.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. The YTM for a premium bond consists entirely of capital gains yield…
b. The market value of a bond will always approach its par value as it matures.
c. Rising inflation makes the actual YTM greater than quoted YTM.
d. The YTM on a par bond consists entirely of current interest yield; it has zero expected capital gains yield.
e. The expected capital gains yield on a bond will always be zero or positive.
Answer: d. The YTM on a par bond consists entirely of current interest yield; it has zero expected capital gains yield.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Total return on a bond = coupon interest only.
b. 10% coupon bond sells at discount if required return = 8%.
c. Price of a discount bond rises over time if YTM stays constant.
d. Debentures have lower YTM than mortgage bonds.
e. Large firms in distress are liquidated; small firms reorganized.
Answer: c. Price of a discount bond rises over time if YTM stays constant.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If the bonds’ market interest rate remains at 10%, Bond Z’s price will be lower one year from now than it is today.
b. Bond X has the greatest reinvestment risk.
c. If market interest rates decline, the prices of all three bonds will increase…
d. If market interest rates remain at 10%, Bond Z’s price will be 10% higher…
e. If market interest rates increase, Bond X’s price will increase, Bond Z’s price will decline…
Answer: a. If the bonds’ market interest rate remains at 10%, Bond Z’s price will be lower one year from now than it is today.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If a bond is selling at a discount to par, its current yield will be greater than its yield to maturity.
b. All else equal, bonds with longer maturities have less price risk than bonds with shorter maturities.
c. If a bond is selling at its par value, its current yield equals its capital gains yield.
d. If a bond is selling at a premium, its current yield will be less than its capital gains yield.
e. All else equal, bonds with larger coupon rates have less price risk than bonds with smaller coupons.
Answer: e. All else equal, bonds with larger coupon rates have less price risk than bonds with smaller coupons.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Two bonds have equal maturities and risk, one sells at par, one at a premium. The premium bond must have lower current yield and higher capital gains yield.
b. A bond’s current yield must always be equal to or between its YTM and coupon rate.
c. If a bond sells at par, then its current yield < YTM.
d. If a bond sells for less than par, then its YTM is less than its coupon rate.
Answer: a. Two bonds have equal maturities and risk, one sells at par, one at a premium. The premium bond must have lower current yield and higher capital gains yield.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Senior debt is paid off after junior debt in bankruptcy.
b. Subordinated debt has less default risk than senior debt.
c. Convertible bonds have lower coupon rates than non-convertibles…
d. Junk bonds typically have lower YTM than investment-grade.
e. A debenture is secured by firm’s fixed assets.
Answer: c. Convertible bonds have lower coupon rates than non-convertibles…
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If a coupon bond is selling at a premium, then the bond’s current yield is zero.
b. If a coupon bond is selling at a discount, the expected capital gains yield is negative.
c. If a bond is selling at a discount, the yield to call is a better measure…
d. The current yield on Bond A exceeds that on Bond B → A has higher YTM.
e. If a coupon bond is selling at par, its current yield equals its YTM.
Answer: e. If a coupon bond is selling at par, its current yield equals its YTM.
Question: Bond A has a 9% coupon, Bond B has a 7% coupon. Both have same maturity, $1,000 face, 8% YTM, noncallable.
Answer Choices:
a. Bond A’s capital gains yield > Bond B’s.
b. Bond A trades at a discount, Bond B at premium.
c. At 8% YTM, Bond A’s price one year from now will be higher…
d. If YTM drops to 6%, Bond A will have larger % increase.
e. Bond A’s current yield > Bond B’s.
Answer: e. Bond A’s current yield > Bond B’s.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Two bonds with the same maturity, YTM, and risk must sell for same price regardless of coupons.
b. ↑ interest rates hurt short-term bond prices more than long-term.
c. ↑ interest rates hurt high-coupon bonds more than low-coupon.
d. If YTM > coupon, bond’s price < par.
e. If YTM > coupon, current yield < coupon.
Answer: d. If YTM > coupon, bond’s price < par.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Zero coupon bonds offer no tax savings until maturity.
b. Callable bonds should have lower YTM than noncallables.
c. Bankruptcy must be liquidated by trustee.
d. Income bonds pay interest only if firm earns it.
e. Sinking fund call at par → firm picks open market if coupon > market.
Answer: d. Income bonds pay interest only if firm earns it.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If the YTM on each bond decreases to 6%, Bond A will have the largest percentage increase in its price.
b. Bond A has the most price risk.
c. If the YTM on the three bonds remains constant, the prices will remain the same.
d. If the YTM on each bond increases to 8%, the prices of all three bonds will decline.
e. Bond C sells at a premium over its par value.
Answer: d. If the YTM on each bond increases to 8%, the prices of all three bonds will decline.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10% coupon bonds.
b. A 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5% coupon bond.
c. The total (rate of) return on a bond during a year is the sum of the coupon interest + price change…
d. The price of a 20-year, 10% bond is less sensitive than a 5-year, 10% bond.
e. A $1,000 bond with $100 annual interest and 5 years left…
Answer: c. The total (rate of) return on a bond during a year is the sum of the coupon interest + price change…
Question: Which of the following statements is CORRECT?
Answer Choices:
a. A bond is likely to be called if its coupon rate is below its YTM.
b. A bond is likely to be called if its market price is below its par value.
c. Even if a bond’s YTC exceeds its YTM, an investor with a long investment horizon would be worse off if the bond were called.
d. A bond is likely to be called if its market price is equal to its par value.
e. A bond is likely to be called if it sells at a discount below par.
Answer: c. Even if a bond’s YTC exceeds its YTM, an investor with a long investment horizon would be worse off if the bond were called.