BOND 2

A zero-coupon bond refers to a bond which:

• does not pay any coupon payments because the issuer is in default.

• promises a single future payment.

• pays coupons only once a year.

• pays coupons only if the bond price is above face value.

A consol is:

• another name for a zero-coupon bond.

• a bond with a maturity date exceeding 10 years.

• a bond that makes periodic interest payments forever.

• a form of a bond that is issued quite often by the U.S. Treasury.

A pure discount bond is also known as a:

• consol.

• fixed payment loan.

• coupon bond.

• zero-coupon bond.

The most common form of zero-coupon bonds found in the United States is:

• AAA rated corporate bonds.

• U.S. Treasury bills.

• 30-year U.S. Treasury bonds.

• municipal bonds.

Which of the following best expresses the formula for determining the price of a U.S. Treasury bill that matures n periods from now per $100 of face value when the interest rate is i?

• $100/(1 + i)^n

• $100(1 + i)

• $100/(1 + i)

• 1 + $100/(1 + i)^n

Once you buy a coupon bond, which of the following can change?

• Coupon rate

• Coupon payment

• Face value

• Yield to maturity

Which of the following makes fixed payments indefinitely?

• Amortized loan

• Consol

• Coupon bond

• Zero-coupon bond

A 10-year Treasury note as a face value of $1,000, price of $1,200, and a 7.5% coupon rate. Based on this information, we know the:

• present value is greater than its price.

• current yield is equal to 8.33%.

• coupon payment on this bond is equal to $75.

• coupon payment on this bond is equal to $90.

If the annual interest rate is 5% (.05), the price of a one-year Treasury bill per $100 of face value would be:

• $95.00

• $97.50

• $95.24

• $96.10

If the annual interest rate is 5% (.05), the price of a six-month Treasury bill would be:

• $97.50

• $97.59

• $95.25

• $95.00