Bond coupon rate
[i]. All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a
a. Sinking fund.
b. Restrictive covenant.
c. Call provision.
d. Change in rating from Aa to Aaa.
e. None of the statements above. (All may reduce the required coupon rate.)
Bond concepts
[ii]. Which of the following statements is most correct?
a. All else equal, if a bonds yield to maturity increases, its price will fall.
b. All else equal, if a bonds yield to maturity increases, its current yield will fall.
c. If a bonds yield to maturity exceeds the coupon rate, the bond will sell at a premium over par.
d. All of the statements above are correct.
e. None of the statements above is correct.
Bond concepts
[iii]. Which of the following statements is most correct?
a. If a bonds yield to maturity exceeds its annual coupon, then the bond will be trading at a premium.
b. If interest rates increase, the relative price change of a 10-year coupon bond will be greater than the relative price change of a 10-year zero coupon bond.
c. If a coupon bond is selling at par, its current yield equals its yield to maturity.
d. Statements a and c are correct.
e. None of the statements above is correct.
Bond concepts
[iv]. A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is currently selling at par ($1,000). Which of the following statements is most correct?
a. The bonds yield to maturity is 9 percent.
b. The bonds current yield is 9 percent.
c. If the bonds yield to maturity remains constant, the bonds price will remain at par.
d. Statements a and c are correct.
e. All of the statements above are correct.
Bond concepts
[v]. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is most correct?
a. The bonds yield to maturity is greater than its coupon rate.
b. If the yield to maturity stays constant until the bond matures, the bonds price will remain at $850.
c. The bonds current yield is equal to the bonds coupon rate.
d. Statements b and c are correct.
e. All of the statements above are correct.
Bond concepts
[vi]. A Treasury bond has an 8 percent annual coupon and a yield to maturity equal to 7.5 percent. Which of the following statements is most correct?
a. The bond has a current yield greater than 8 percent.
b. The bond sells at a price above par.
c. If the yield to maturity remains constant, the price of the bond is expected to fall over time.
d. Statements b and c are correct.
e. All of the statements above are correct.
Bond concepts
[vii]. You are considering investing in three different bonds. Each bond matures in 10 years and has a face value of $1,000. The bonds have the same level of risk, so the yield to maturity is the same for each. Bond A has an
8 percent annual coupon, Bond B has a 10 percent annual coupon, and Bond C has a 12 percent annual coupon. Bond B sells at par. Assuming that interest rates are expected to remain at their current level for the next 10 years, which of the following statements is most correct?
a. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year.
b. Bond As price is expected to decrease over the next year, Bond Bs price is expected to stay the same, and Bond Cs price is expected to increase over the next year.
c. Since the bonds have the same yields to maturity, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until the bonds mature.
d. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year.
e. Statements b and d are correct.
Bond concepts
[viii]. An investor is considering buying one of two bonds issued by Carson City Airlines. Bond A has a 7 percent annual coupon, whereas Bond B has a
9 percent annual coupon. Both bonds have 10 years to maturity, face values of $1,000, and yields to maturity of 8 percent. Assume that the yield to maturity for both of the bonds will remain constant over the next 10 years. Which of the following statements is most correct?
a. Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price as each other.
b. Bond B has a higher price than Bond A today, but one year from now the bonds will have the same price as each other.
c. Both bonds have the same price today, and the price of each bond is expected to remain constant until the bonds mature.
d. One year from now, Bond As price will be higher than it is today.
e. Bond As current yield (not to be confused with its yield to maturity) is greater than 8 percent.
Bond concepts
[ix]. A 10-year bond with a 9 percent annual coupon has a yield to maturity of 8 percent. Which of the following statements is most correct?
a. The bond is selling at a discount.
b. The bonds current yield is greater than 9 percent.
c. If the yield to maturity remains constant, the bonds price one year from now will be lower than its current price.
d. Statements a and b are correct.
e. None of the statements above is correct.