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Multiple Choice



1

A zero coupon bond:
A)Does not pay any coupon payments because the issuer is in default.
B)Pays coupons only once a year versus the usual twice a year.
C)Promises a single future payment.
D)Pays coupons only if the bond price is below face value.
2

Which of the following best expresses the formula for determining the price of a U.S. Treasury bill per $100 of face vale:
A)$100(1 + i)
B)$100/(1 + i)n
C)$100/(1 + i)
D)1 + $100/(1 + i)n
3

If the annual interest rate is 6% (.06); the price of a one year Treasury bill would be:
A)$94.00
B)$94.33
C)$95.25
D)$96.10
4

If the annual interest rate is 6% (.06) the price of a three-month Treasury bill would be:
A)$98.79
B)$95.00
C)$98.55
D)$97.59
5

The relationship between the price and the interest rate for a zero coupon bond is best described as:
A)Volatile:
B)Stable.
C)Non-existent
D)Inverse.
6

The price of a coupon bond can best be described as:
A)The present value of the face value.
B)The future value of the coupon payments and the face value.
C)The present value of the coupon payments.
D)a plus b
E)a plus c
7

When the price of a bond is above face value:
A)The yield to maturity will be above the coupon rate.
B)The yield to maturity is below the coupon rate.
C)The yield to maturity will equal zero.
D)The yield to maturity will equal the coupon rate.
8

The coupon rate of bond is:
A)Another term for the current yield.
B)Another term for the yield to maturity.
C)Could not be calculated for a zero-coupon bond.
D)None of the above.
9

A $1000 face value bond purchased for $950.00, with an annual coupon of $60, and 20 years to maturity has:
A)A coupon rate equal to 6.32%.
B)A current yield equal to 6.00%.
C)A current yield equal to 6.32%.
D)A yield to maturity and current yield equal to 6.32%.
E)A yield to maturity and coupon rate equal to 6.00%.
10

When the current yield and the coupon rate are equal:
A)The bond is purchased at a price that equals the face value.
B)The bond is purchased at a discount.
C)The bond is a zero coupon bond.
D)The bond is purchased at a price that exceeds face value.
11

The bond dealer's spread is:
A)The bid price plus the asking price.
B)The difference between the current yield and the yield to maturity.
C)The asking price less the bid price.
D)Usually negative, the dealer makes their profit holding the bonds.
12

Which of the following best expresses the equation for holding period return:
A)Current yield – coupon rate.
B)Yield to maturity + Current yield
C)Coupon rate + Capital gain.
D)Current yield + Capital gain.
13

Bond prices and yields:
A)Move together inversely.
B)Bond yields do not change since the coupon is fixed.
C)Move together directly.
D)Are independent of each other.
14

If the Supply of bonds exceeded the demand for bonds:
A)Bond prices would fall and yields would fall.
B)Bond prices would fall and yields would rise.
C)Bond prices would rise but yields will remain constant.
D)Bond prices and yields would increase.
15

When expected inflation increases for any given nominal interest rate:
A)The real cost of repayment for bond issuers decreases.
B)The real return for bondholders increases.
C)The real cost of repayment for bond issuers increases.
D)The bond demand curve shifts right.
E)b and d





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