Finance ch.6 – Flashcards

You have purchased a 12% coupon bond for $1020. If market interest rates rise, the bond's price will (increase/decrease).

How are investors in zero-coupon bonds compensated for making such an investment? A. Such bonds are purchased at a discount to their face value. B. The face value of these bonds is less than the value of the bond when the bond matures. C. Such bonds are purchased at their face value and sold at a premium at a later date. D. The bond makes regular interest payments.

Why are the interest rates of US Treasury notes less than the interest rates of equivalent corporate bonds? A. The US government has a high credit spread. B. US Treasury securities are widely regarded to be risk-free. C. There is significant risk that the US government will default. D. US Treasury securities are generally used to determine interest rates.

Which of the following statements are true? A. A rise in interest rates causes bond prices to fall. B. Bond prices and interest rates are not connected. C. A fall in interest rates causes a fall in bond prices. D. A fall in bond prices causes interest rates to fall.

True or False: Bonds with a high risk of default generally offer high yields.

Which of the following statements is FALSE? A. The time remaining until the repayment date is known as the term of the bond. B. Bonds typically make two types of payments to their holders. C. Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments. D. By convention the coupon rate is expressed as an effective annual rate.