1. The current yield measures the bond's total rate of return. A) True B) False
2. How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 7%?
A) $1,123.01
B) $1,075.82
C) $1,082.00
D) $696.74
3. A U.S. Treasury security that pays a fixed coupon and has an initial maturity of 2 to 10 years is called a:
A) Treasury bond.
B) Treasury note.
C) TIPS.
D) Treasury bill.
4. Assume a bond has been owned by four different investors during its 20-year history. Which one of the following is most likely to have been different for each of these owners?
A) Yield to maturity
B) Coupon frequency
C) Par value
D) Coupon rate
5. Credit risk implies that the promised yield to maturity on the bond is higher than the expected yield. A) True B) False
6. TIPS are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases. A) True B) False
7. How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?
A) $792.09
B) $760.00
C) $260.00
D) $209.91
8. Many investors may be drawn to municipal bonds because of the bonds':
A) high coupon payments.
B) long periods until maturity.
C) speculative grade ratings.
D) income exemption from federal taxes.
9. Zero-coupon bonds are issued at prices below face value, and the investor's return comes from the difference between the purchase price and the payment of face value at maturity A) True B) False
10. What nominal return would an investor need to receive if he desires a real return of 4% and the rate of inflation is 5%?
A) 9.20%
B) 9.00%
C) 8.64%
D) 4.20%
11. The holder of which one of these securities has first claim on the assets of a firm?
A) Common stock
B) Subordinated debt
C) Preferred stock
D) Senior debt