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Chapter08-InterestRatesandBondValuation8-11.Abondthatmakesnocouponpaymentsandisinitiallypricedatadeepdiscountiscalleda_____bond.A.TreasuryB.municipalC.floating-rateD.junkE.zerocoupon2.Anassetcharacterizedbycashflowsthatincreaseataconstantrateforeveriscalleda:A.growingperpetuity.B.growingannuity.C.commonannuity.D.perpetuitydue.E.preferredstock.3.Thestatedinterestpayment,indollars,madeonabondeachperiodiscalledthebond's:A.coupon.B.facevalue.C.maturity.D.yieldtomaturity.E.couponrate.4.Theprincipalamountofabondthatisrepaidattheendoftheloantermiscalledthebond's:A.coupon.B.facevalue.C.maturity.D.yieldtomaturity.E.couponrate.5.Thespecifieddateonwhichtheprincipalamountofabondisrepaidiscalledthebond's:A.coupon.B.facevalue.C.maturity.D.yieldtomaturity.E.couponrate.6.Therateofreturnrequiredbyinvestorsinthemarketforowningabondiscalledthe:A.coupon.B.facevalue.C.maturity.D.yieldtomaturity.E.couponrate.7.Theannualcouponofabonddividedbyitsfacevalueiscalledthebond's:A.coupon.B.facevalue.C.maturity.D.yieldtomaturity.E.couponrate.8.Abondwithafacevalueof$1,000thatsellsfor$1,000inthemarketiscalleda_____bond.A.parvalueB.discountC.premiumD.zerocouponE.floatingrate9.Abondwithafacevalueof$1,000thatsellsforlessthan$1,000inthemarketiscalleda_____bond.A.parB.discountC.premiumD.zerocouponE.floatingrate10.Therelationshipbetweennominalrates,realrates,andinflationisknownasthe:A.MillerandModiglianitheorem.B.Fishereffect.C.Gordongrowthmodel.D.termstructureofinterestrates.E.interestrateriskpremium.11.Therelationshipbetweennominalinterestratesondefault-free,purediscountsecuritiesandthetimetomaturityiscalledthe:A.liquidityeffect.B.Fishereffect.C.termstructureofinterestrates.D.inflationpremium.E.interestrateriskpremium.12.The_____premiumisthatportionofanominalinterestrateorbondyieldthatrepresentscompensationforexpectedfutureoverallpriceappreciation.A.defaultriskB.taxabilityC.liquidityD.inflationE.interestrateriskChapter08-InterestRatesandBondValuation8-213.Abondwitha7%couponthatpaysinterestsemi-annuallyandispricedatparwillhaveamarketpriceof_____andinterestpaymentsintheamountof_____each.A.$1,007;$70B.$1,070;$35C.$1,070;$70D.$1,000;$35E.$1,000;$7014.Allelseconstant,abondwillsellat_____whentheyieldtomaturityis_____thecouponrate.A.apremium;higherthanB.apremium;equaltoC.atpar;higherthanD.atpar;lessthanE.adiscount;higherthan15.Allelseconstant,acouponbondthatissellingatapremium,musthave:A.acouponratethatisequaltotheyieldtomaturity.B.amarketpricethatislessthanparvalue.C.semi-annualinterestpayments.D.ayieldtomaturitythatislessthanthecouponrate.E.acouponratethatislessthantheyieldtomaturity.16.Themarketpriceofabondisequaltothepresentvalueofthe:A.facevalueminusthepresentvalueoftheannuitypayments.B.annuitypaymentsplusthefuturevalueofthefaceamount.C.facevalueplusthepresentvalueoftheannuitypayments.D.facevalueplusthefuturevalueoftheannuitypayments.E.annuitypaymentsminusthefacevalueofthebond.17.AmericanFortunesispreparingabondofferingwithan8%couponrate.Thebondswillberepaidin10years.Thecompanyplanstoissuethebondsatparvalueandpayinterestsemiannually.Giventhis,whichofthefollowingstatementsarecorrect?I.Theinitialsellingpriceofeachbondwillbe$1,000.II.Afterthebondshavebeenoutstandingfor1year,youshoulduse9asthenumberofcompoundingperiodswhencalculatingthemarketvalueofthebond.III.Eachinterestpaymentperbondwillbe$40.IV.Theyieldtomaturitywhenthebondsarefirstissuedis8%.A.IandIIonlyB.IIandIIIonlyC.II,III,andIVonlyD.I,II,andIIIonlyE.I,III,andIVonly18.ThenewlyissuedbondsoftheWynslowCorp.offera6%couponwithsemiannualinterestpayments.Thebondsarecurrentlypricedatparvalue.Theeffectiveannualrateprovidedbythesebondsmustbe:A.equalto3%.B.greaterthan3%butlessthan4%.C.equalto6%.D.greaterthan6%butlessthan7%.E.equalto12%.19.Youownabondthathasa7%couponandmaturesin12years.Youpurchasedthisbondatparvaluewhenitwasoriginallyissued.Ifthecurrentmarketrateforthistypeandqualityofbondis7.5%,thenyouwouldexpect:A.thebondissuertoincreasetheamountofeachinterestpaymentonthesebonds.B.theyieldtomaturitytoremainconstantduetothefixedcouponrate.C.torealizeacapitallossifyousoldthebondatthemarketpricetoday.D.today'smarketpricetoexceedthefacevalueofthebond.E.thecurrentyieldtodaytobelessthan7%.20.Abondwithsemi-annualinterestpayments,allelseequal,wouldbepriced_________thanonewithannualinterestpayments.A.higherB.lowerC.thesameD.itisimpossibletotellE.eitherhigherorthesame21.Azerocouponbond:A.issoldatalargepremium.B.hasapriceequaltothefuturevalueofthefaceamountgivenaspecifiedrateofreturn.C.canonlybeissuedbytheU.S.Treasury.D.haslessinterestrateriskthanacomparablecouponbond.E.hasimplicitinterestwhichiscalculatedbyamortizingtheloan.22.Thetotalinterestpaidonazero-couponbondisequalto:A.zero.B.thefacevalueminustheissueprice.C.thefacevalueminusthemarketpriceonthematuritydate.D.$1,000minusthefacevalue.E.$1,000minustheparvalue.Chapter08-InterestRatesandBondValuation8-323.Theyieldtomaturityis:A.theratethatequatesthepriceofthebondwiththediscountedcashflows.B.theexpectedratetobeearnedifheldtomaturity.C.theratethatisusedtodetermi