Bond Coupon/Features
Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?
What is coupon?
The bond market requires a return of 9.8 percent on the 5-year bonds issued by JW Industries. The 9.8 percent is referred to as the:
What is Yield to Maturity?
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, what happens?
The Market price of the bond will decrease
A discount bond's coupon rate is equal to the annual interest divided by the:
What is Face Value?
The current yield is defined as the annual interest on a bond divided by the:
What is Market Price?
Round Dot Inns is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?
A) The bonds will become discount bonds if the market rate of interest declines.
B) The bonds will pay 10 interest payments of $60 each.
C) The bonds will sell at a premium if the market rate is 5.5 percent.
D) The bonds will initially sell for $1,030 each.
E) The final payment will be in the amount of $1,060.
The bonds will sell at a premium if the market rate is 5.5 percent.
Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?
What is Face Value?
A $1,000 par value corporate bond that pays $60 annually in interest was issued last year. What applies to this bond today if the current price of the bond is $996.20?
What happens when current yield exceeds the coupon rate?
The price sensitivity of a bond increases in response to a change in the market rate of interest as the:
A) coupon rate increases.
B) time to maturity decreases.
C) coupon rate decreases and the time to maturity increases.
D) time to maturity and coupon rate both decrease.
E) coupon rate and time to maturity both increase.
coupon rate decreases and the time to maturity increases.
A bond's principal is repaid on the ________ date.
What is Maturity?
Which one of these equations applies to a bond that currently has a market price that exceeds par value?
Yield to maturity < Coupon rate
Which one of the following bonds is the least sensitive to interest rate risk?
A) 3-year; 4 percent coupon
B) 3-year; 6 percent coupon
C) 5-year; 6 percent coupon
D) 7-year; 6 percent coupon
E) 7-year; 4 percent coupon
3-year; 6 percent coupon
Which one of the following relationships applies to a par value bond?
A) Yield to maturity > Current yield > Coupon rate
B) Coupon rate > Yield to maturity > Current yield
C) Coupon rate = Current yield = Yield to maturity
D) Coupon rate < Yield to maturity < Current yield
E) Coupon rate > Current yield > Yield to maturity
Coupon rate = Current yield = Yield to maturity
All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity.
A) a premium; less than
B) a premium; equal to
C) a discount; less than
D) a discount; higher than
E) par; less than
A Discount: higher than
You own a bond that pays an annual coupon of 6 percent that matures five years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?
A) The current yield to maturity is greater than 6 percent.
B) The current yield is 6 percent.
C) The next interest payment will be $30.
D) The bond is currently valued at one-half of its issue price.
E) You will realize a capital gain on the bond if you sell it today.
You will realize a capital gain on the bond if you sell it today.