Bond Discounting MCQs (1-10)

1. Which of the following Debt is unsecured?

(a) Bonds

(b) Debenture

(c) Euro Bond

(d) Mortgage Bond

Correct! Wrong!

At issue, coupon bonds typically sell _________________?

(a) Above par value

(b) Below par

(c) At or near par value

(d) At a value unrelated to par

Correct! Wrong!

The _____________________ is used to calculate the present value of a bond?

(a) Nominal yield

(b) Current yield

(c) Yield to call

(d) Yield to maturity

Correct! Wrong!

4. Mortgage bonds are secured by real property whose value is generally __________ than that of the value of the bonds issue?

(a) Higher

(b) Lower

(c) Equal

(d) Higher or lower

Correct! Wrong!

5. Using semi-annual compounding, a 15-year zero coupon bond that has a par value of $ 1,000 and a required return of 8 % would be priced at approximately ________________?

(a) $464

(b) $315

(c) $308

(d) $555

Correct! Wrong!

6. Market price of the bond changes according to which of the following reasons?

(a) Market price changes due to the supply demand of the bond in the market

(b) Market price changes due to Investor’s perception

(c) Market price changes due to change in the interest rate

(d) All of the given options

Correct! Wrong!

7. A bond will sell at a discount when __________?

(a) The coupon rate is greater than the current yield and the current yield is greater than yield to maturity

(b) The coupon rate is greater than yield to maturity

(c) The coupon rate is less than the current yield and the current yield is less than yield to maturity

(d) The coupon rate is less than the current yield and the current yield is greater than the yield to maturity

Correct! Wrong!

8. What is the value of 15 % Coupon Bond that has $1,000 Face Value and four years to Maturity that is priced to Yield 10%?

(a) $1,255

(b) $677

(c) $875

(d) None

Correct! Wrong!

9. Which of the following statements is most correct?

(a) All else equal, if a bond’s yield to maturity increases, its price will fall

(b) All else equal, if a bond’s yield to maturity increases, its price will rise

(c) If a bond’s yield to maturity exceeds the coupon rate, the bond will sell at a premium over par

(d) All of the statements above are correct

Correct! Wrong!

10. Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and makes semi-annual interest payments of $40. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

(a) $619

(b) $674

(c) $761

(d) $828

Correct! Wrong!

1. Which of the following Debt is unsecured?

At issue, coupon bonds typically sell _________________?

The _____________________ is used to calculate the present value of a bond?

4. Mortgage bonds are secured by real property whose value is generally __________ than that of the value of the bonds issue?

5. Using semi-annual compounding, a 15-year zero coupon bond that has a par value of $ 1,000 and a required return of 8 % would be priced at approximately ________________?

6. Market price of the bond changes according to which of the following reasons?

7. A bond will sell at a discount when __________?

8. What is the value of 15 % Coupon Bond that has $1,000 Face Value and four years to Maturity that is priced to Yield 10%?

9. Which of the following statements is most correct?

10. Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and makes semi-annual interest payments of $40. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

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