Corporate Finance: The Core (Berk/DeMarzo)
Chapter 8 - Valuing Bonds

8.1 Bond Cash Flows, Prices, and Yields 1)
Which of the following statements is false? A)
Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments. B)
By convention the coupon rate is expressed as an effective annual rate. C)
Bonds typically make two types of payments to their holders. D)
The time remaining until the repayment date is known as the term of the bond. Answer:
B
Explanation:
A)
B)

C)

D)

Diff: 1 Topic: 8.1 Bond Cash Flows, Prices, and Yields Skill: Definition

2)
Which of the following formulas is incorrect? A)
Yield to maturity for an n-period zero-coupon bond = [pic] B)
Price of an n-period bond = [pic] + [pic] + ... + [pic] C)
Price of an n-period bond = Coupon × [pic] + [pic] D)
Coupon = [pic] Answer:
A
Explanation:
A)
B)

C)

D)

Diff: 2 Topic: 8.1 Bond Cash Flows, Prices, and Yields Skill: Conceptual

3)
Which of the following statements is false? A)
The IRR of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default free bond at its current price and hold it to maturity. B)
The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond. C)
Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields. D)
When we calculate a bond's yield to maturity by