Bond Concepts Quiz

The market value of any real or financial asset, including stocks, bonds, or artwork purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the present.

• True

• False

A call provision gives bondholders the right to demand, or 'call for,' repayment of a bond.

• True

• False

There is an inverse relationship between bonds' quality ratings and their required rates of return.

• True

• False

A zero-coupon bond is a bond that pays no interest and is offered (and initially sells) at par.

• True

• False

If the required rate of return on a bond (rd) is greater than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until the bond matures, at which time its market value will equal its par value.

• True

• False

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

• True

• False

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

• True

• False

So long as a bond sells for an amount above its par value, the coupon interest rate and yield to maturity remain equal.

• True

• False

As the maturity date of a bond approaches, the bond's market value approaches its par value.

• True

• False

Shorter-term bonds have greater interest rate risk than do longer-term bonds.

• True

• False