Selected practice questions from Chapters 6 – 8, FIN 335, with Dr. Graham

From Chapter 6 – Bonds and Bond Value

1. The stated interest payment, in dollars, made on a bond each period is called the bond's: A) Coupon. B) Face value. C) Maturity. D) Yield to maturity. E) Coupon rate.
Answer: A

2. The principal amount of a bond that is repaid at the end of the loan term is called the bond's: A) Coupon. B) Face value. C) Maturity. D) Yield to maturity. E) Coupon rate.
Answer: B

3. The rate of return required by investors in the market for owning a bond is called the: A) Coupon. B) Face value. C) Maturity. D) Yield to maturity. E) Coupon rate.
Answer: D

4. The annual coupon of a bond divided by its face value is called the bond's: A) Coupon. B) Face value. C) Maturity. D) Yield to maturity. E) Coupon rate.
Answer: E

5. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a: A) Par bond. B) Discount bond. C) Premium bond. D) Zero coupon bond. E) Floating rate bond.
Answer: B

6. A bond with a face value of $1,000 that sells for more than $1,000 in the market is called a: A) Par bond. B) Discount bond. C) Premium bond. D) Zero coupon bond. E) Floating rate bond.
Answer: C

7. The long-term bonds issued by the United States government are called: A) Treasury bonds. B) Municipal bonds. C) Floating rate bonds. D) Junk bonds. E) Zero coupon bonds.
Answer: A

8. A bond that makes no coupon payments (and thus is initially priced at a deep discount to par value) is called a _______ bond. A) Treasury B) municipal C) floating rate D) junk E) zero coupon
Answer: E

9. A bond which, at the election