chapter 07 Interest Rates and Bond Valuation Answer Key

Multiple Choice Questions 1. Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?
A. coupon
B. face value
C. discount
D. call premium
E. yield
Refer to section 7.1

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 7-1
Section: 7.1
Topic: Coupon 2. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?
A. coupon
B. face value
C. discount
D. yield
E. dirty price
Refer to section 7.1

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 7-1
Section: 7.1
Topic: Face value

3. A bond's coupon rate is equal to the annual interest divided by which one of the following?
A. call price
B. current price
C. face value
D. clean price
E. dirty price
Refer to section 7.1

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 7-1
Section: 7.1
Topic: Coupon rate 4. The specified date on which the principal amount of a bond is payable is referred to as which one of the following?
A. coupon date
B. yield date
C. maturity
D. dirty date
E. clean date
Refer to section 7.1

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 7-1
Section: 7.1
Topic: Maturity

5. Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following?
A. coupon rate
B. face rate
C. call rate
D. yield to maturity
E. interest rate
Refer to section 7.1

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 7-1
Section: 7.1
Topic: Yield to maturity 6. The current yield is defined as the annual interest on a bond divided by which one of the following?