Test for Chapter 8

The _____ premium is that portion of the bond yield that represents compensation for potential diculties that might be encountered should the bond holder wish to sell the bond prior to maturity.

• inflation

• default risk

• taxability

• liquidity

• interest rate risk

A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each

• $1,000; $30

• $1,060; $60

• $1,006; $60

• $1,060; $30

• $1,000; $60

The rate of return required by investors in the market for owning a bond is called the

• yield to maturity

• maturity

• coupon

• coupon rate

• face value

The Fisher formula is expressed as _____ where R is the nominal rate, r is the real rate, and h is the ination rate

• r = Rh

• 1 + R = (1 + r)/(1 + h)

• 1 + R = (1 + r)(1 + h)

• 1 + h = (1 + r)/(1 + R)

• R = rh

Which entity provides a daily snapshot of bond prices for the most active issues?

• SEC

• US Treasury Department

• NYSE

• FINRA

• Federal Reserve Bank

A zero coupon bond

• is sold at a large premium

• has a market price that is computed using semiannual compounding of interest

• has a price equal to the future value of the face amount given a positive rate of return

• can only be issued by the U.S. Treasury

• has less interest rate risk than a comparable coupon bond

The promised coupon payments on a US TIPS bond are specied in

• real terms

• inated terms

• Canadian dollars

• euros

• nominal terms

If a bond's yield to maturity is less than its coupon rate, the bond will sell at a _____, and increases in market interest rates will

• discount; decrease this discount

• discount; increase this discount

• premium; not aect this premium

• premium; decrease this premium

• premium; increase this premium

A bond is listed in a newspaper at a bid of 105.4844. This quote should be interpreted to mean

• you can sell that bond at a price equal to 105.4844 percent of face value

• you can buy that bond at a price equal to 105.4844 percent of face value

• the bond will pay semiannual interest payments of $105.4844 per $1,000 of face value

• the bond will pay annual interest payments of $105.4844 per $1,000 of face value

• the bond dealer is willing to sell that bond for a price equal to 105.4844 percent of par

The relationship between nominal rates, real rates, and ination is known as the

• term structure of interest rates

• interest rate risk premium

• Miller and Modigliani theorem

• Fisher effect

• Gordon growth model