Debt and Interest Rate

If a bond is a zero coupon bond and market interest rates are positive, it must be sold at a price...

• ...less than its par value (discount bond).

• ...above its par value (premium bond).

• ...equal to its par value (par bond).

• Unable to determine with given information.

Which of the following statements about bonds is FALSE?

• A bond's face value is the same as a loan's principal amount
• A bond's payments are typically fixed in advance
• A bond is not legally required to promise any interest payment
• A bond certificate must specify the name of its holder

You are considering a bond with par value of 1000 which will pay coupon of 50 per year. The bond's maturity is 4 years. If the yield to maturity is 6%, the bond's coupon rate is closest to:

• 5%

• 6%

• 2%

• 24%

You are considering a bond with par value of 1000 which will pay coupon of 50 per year. The bond's maturity is 4 years. If the yield to maturity is 6%, the bond's price is closest to:

• 965
• 1000
• 1200
• 991

Last year, you bought a bond with par value of 1000 that pays coupon of 50 per year. The bond's maturity was 4 years. If the yield to maturity is 6%, the bond's price TODAY is closest to:

• 973
• 965
• 1000
• 950

A bond is priced at 1,027.23 today at yield to maturity of 5%. If it is a 3-year bond with par value of 1000, its coupon rate is closest to:

• 6%

• 5%

• 4%

• 7%

Which of the following statements about bonds is FALSE?

• A bond with high yield is more attractive than bond with low yield
• If a bond is unrated, it is very risky
• Both government and corporate bonds can be rated
• For companies to issue bonds to public, it must be obtain credit rating

If a bond's duration is high, …

• its price is more sensitive to changes in interest rate
• its issuer is not financially healthy
• investors must wait a long time to get money back
• it is difficult to sell quickly at a fair price

To increase creditworthiness, you should…

• All of the options are correct
• Have more disposable income
• Provide collateral
• Find guarantor

If the issuer of a 10-year bond is the government, the bond must have …

• Maturity risk
• Liquidity risk
• Default risk
• All of the risks