CHAPTER 6

What does a bond certificate state?

• The terms of a bond and payment details

• Only the maturity date

• The face value of the bond

• The coupon rate

What is a zero-coupon bond?

• A bond that pays interest periodically

• A bond that makes only one payment at maturity

• A bond that has a high coupon rate

• A bond that is issued by corporations

What is the yield to maturity (YTM)?

• The rate of return of an investment in a bond

• The coupon rate of a bond

• The face value of a bond

• The price of a bond

What does trading at a discount mean?

• Trading below par value

• Trading above par value

• Trading at face value

• Trading at a premium

What is the difference between clean price and dirty price?

• Clean price includes accrued interest

• Dirty price is the actual price of the bond

• Clean price is always higher than dirty price

• There is no difference

What is the credit risk of a bond?

• The risk of default by the issuer

• The risk of interest rate changes

• The risk of market fluctuations

• The risk of inflation

What are investment-grade bonds?

• Bonds with the highest credit ratings

• Bonds with low risk of default

• Bonds rated by Standard & Poor's

• All of the above

What does the price of a coupon bond equal?

• The present value of its cash flows

• The face value of the bond

• The market price of the bond

• The yield to maturity

What is the Valuation Principle in stock valuation?

• The price of a security should equal its cash flows

• The price of a stock is determined by its dividends

• The price of a stock is always higher than its book value

• The price of a stock is determined by market demand

What is a ticker symbol?

• A unique abbreviation for a company

• A type of stock

• A measure of stock performance

• A voting method for shareholders