Chap006 FINANCE.docx

Chap006 FINANCE.docx

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Chap006FINANCE

CHAPTER6

InterestRatesandBondValuation

I.DEFINITIONS

COUPON

c1.Thestatedinterestpaymentmadeonabondiscalledthe:

a.facevalue.

b.yieldtomaturity.

c.coupon.

d.maturityrate.

e.discountrate.

FACEVALUE

b2.Theprincipalamountofabondthatisrepaidattheendoftermiscalledtheparvalueorthe:

a.discountamount.

b.facevalue.

c.back-endamount.

d.coupon.

e.couponrate.

COUPONRATE

e3.Thecouponrateisbestdefinedasthe:

a.annualcoupondividedbythecurrentpriceofabond.

b.periodicpaymentdividedbythepremiumvalueofabond.

c.semi-annualinterestpaymentdividedbythemarketprice.

d.semi-annualinterestpaymentdividedbytheparvalue.

e.annualcoupondividedbythefacevalueofabond.

MATURITY

d4.Thedateonwhichtheprincipalamountofabondispaidisreferredtoasthe:

a.coupondate.

b.issuedate.

c.issuance.

d.maturity.

e.conversion.

YIIELDTOMATURITY

a5.Theraterequiredinthemarketonabondiscalledthe:

a.yieldtomaturity.

b.callyield.

c.currentyield.

d.liquiditypremium.

e.riskpremium.

PREMIUMBOND

c6.Apremiumbondisabondthat:

a.iscallablewithin12monthsorless.

b.hasafacevalueinexcessof$1,000.

c.hasamarketpricewhichexceedsthefacevalue.

d.issellingforlessthanparvalue.

e.hasaparvaluewhichexceedsthefacevalue.

DISCOUNTBOND

d7.Abondwhichsellsforlessthanthefacevalueiscalleda:

a.parvaluebond.

b.perpetuity.

c.debenture.

d.discountbond.

e.premiumbond.

CURRENTYIELD

e8.Thecurrentyieldisdefinedasthe:

a.interestpaymentdividedbytheparvalue.

b.annualcoupondividedbythefaceamount.

c.semi-annualcoupondividedbythefaceamount.

d.semi-annualcoupondividedbythemarketprice.

e.annualcoupondividedbythemarketprice.

INDENTURE

a9.Thewrittenagreementbetweenthecorporationanditscreditorsiscalledthebond:

a.indenture.

b.debenture.

c.security.

d.face.

e.structure.

REGISTEREDFORM

d10.Wheninterestpaymentsonabondaremadedirectlytotheownerofrecord,thebondissaidtobein_____form.

a.bearer

b.coupon

c.street

d.registered

e.secure

BEARERFORM

a11.Wheninterestpaymentsaremadetowhoeverholdsthebond,thebondissaidtobein_____form.

a.bearer

b.coupon

c.street

d.registered

e.secure

DEBENTURE

c12.Adebentureisa（n）:

a.long-termdebtsecuredbyfixedassetsownedbythefirm.

b.long-termdebtsecuredspecificallybylandownedbythefirm.

c.unsecureddebtwhichgenerallymaturesintenyearsormore.

d.unsecureddebtwhichgenerallymaturesinlessthantenyears.

e.anydebtwhichmaturesinlessthantenyears.

NOTE

e13.Anunsecureddebtwhichgenerallymaturesinlessthantenyearsiscalleda:

a.debenture.

b.collateralbond.

c.perpetuity.

d.termbond.

e.note.

SINKINGFUND

b14.Asinkingfundisanaccountmanagedbythebondtrusteeforthepurposeof:

a.payinginterestpayments.

b.redeemingbondsearly.

c.repayingtheprincipalattheendoftheterm.

d.issuingnewbonds.

e.reinvestinginterestpayments.

CALLPROVISION

c15.Therightofthebondissuertorepurchasethebondatapredeterminedpricepriortomaturityisreferredtoasthe:

a.liquidityprovision.

b.taxabilityprovision.

c.callprovision.

d.conversionfeature.

e.debenture.

CALLPREMIUM

d16.Thecallpremiumistheamountbywhichthe:

a.facevalueexceedsthecallprice.

b.parvalueexceedsthemarketprice.

c.facevalueexceedsthemarketprice.

d.callpriceexceedstheparvalue.

e.callpriceexceedsthemarketprice.

DEFERREDCALLPROVISION

a17.Theprovisionwhichprohibitsabondissuerfromrepurchasingabondforaperiodoftimeafterissueiscalledthe_____provision.

a.deferredcall

b.marketability

c.liquidity

d.debenture

e.discount

CALLPROTECTEDBOND

e18.Abondwhichanissueriscurrentlyrestrictedfromredeemingisreferredtoasa:

a.securitizedbond.

b.calleddebenture.

c.munibond.

d.termstructureddebt.

e.callprotectedbond.

PROTECTIVECOVENANT

b19.Thestipulationsinabondindentureagreementwhichlimittheactionsafirmcantakewhilethebondissueisoutstandingarecalled:

a.termstructures.

b.protectivecovenants.

c.liquidityconditions.

d.bindingagreements.

e.debenturelaws.

MUNICIPALBOND

b20.Thenicknameforabondissuedbyastateis:

a.CoCo.

b.muni.

c.fifty.

d.pets.

e.NoNo.

ZEROCOUPONBOND

c21.Adeepdiscountbondthatpaysnoregularinterestpaymentsiscalleda（n）_____bond.

a.exotic

b.income

c.zerocoupon

d.convertible

e.put

BIDPRICE

e22.Thepriceatwhichyoucansellabondandatwhichthedealerwillpurchaseitis

calledthe_____price.

a.asked

b.coupon

c.call

d.put

e.bid

ASKEDPRICE

a23.Thepriceadealeriswillingtotakeforasecurityiscalledthe_____price.

a.asked

b.coupon

c.call

d.put

e.bid

BID-ASKSPREAD

c24.Theprofitthatadealerearnsonthepurchaseandsubsequentresaleofabondiscalled

the:

a.discount.

b.premium.

c.spread.

d.conversionyield.

e.convertibleyield.

REALRATES

d25.Aninterestratethathasbeenadjustedforinflationiscalleda_____rate.

a.deflated

b.coupon

c.nominal

d.real

e.premium

NOMINALRATES

a26.Therateofreturnyouearnonaninvestmentbeforeadjustingforinflationiscalledthe

_____rate.

a.nominal

b.real

c.premium

d.coupon

e.discount

CLEANPRICE

b27.Thecleanpriceofabondistheprice:

a.excludinganyinflationadjustment.

b.excludinganyaccruedinterest.

c.excludingfuturecoupons.

d.includingbrokercommissions.

e.includinginterestearnedbytheseller.

DIRTYPRICE

e28.Thedirtypriceofabondistheprice:

a.excludinganymarketpremium.

b.excludingfuturecouponsorcallpremiums.

c.computedasthemarketpriceplusthebroker’scommission.

d.includingfuturecallpremiums.

e.includinganyaccruedinteresttodate.

FISHEREFFECT

c29.TheFishereffectaddressestherelationshipbetween:

a.abond’sdirtypriceanditscleanprice.

b.Treasuryyieldsandcorporateyields.

c.inflation,real,andnominalrates.

d.short-termandlong-termyields.

e.theyieldtocallandtheyieldtomaturity.

TERMSTRUCTUREOFINTERESTRATES

d30.Thepuretimevalueofmoney,asillustratedbythenominalinterestratesondefault-

free,purediscountbonds,iscalledthe:

a.currentyield.

b.long-termyieldtomaturity.

c.cleanmarketyield.

d.termstructureofinterestrates.

e.indenturedstructureofbonds.

INFLATIONPREMIUM

b31.Thecompensationinvestorsrequiretooffsetexpectedfutureincreasesinpricesis

calledthe:

a.interestrateriskpremium.

b.inflationpremium.

c.discountvalue.

d.convertiblevalue.

e.futureinflatedvalue.

INTERESTRATERISKPREMIUM

d32.Theinterestrateriskpremiumisthecompensationinvestorsrequirefortheir

assumptionoftheriskrelatedto:

a.theconvertibilityofabond.

b.thetaxabilityofabond.

c.inflationratefluctuations.

d.changesininterestrates.

e.apotentialdefaultonthebond.

TREASURYYIELDCURVE

c33.WhentheyieldsofTreasurynotesandbondsareplottedonagraphinrelationtotheir

respectivetimestomaturity,theresultingcurveiscalledtheTreasury_____curve.

a.maturity

b.coupon

c.yield

d.call

e.premium

DEFAULTRISKPREMIUM

e34.Theportionofabond’syieldthatcompensatesinvestorsforthepossibilitythatthe

bond’sinterestorprincipalmightnotbepaidiscalledthe:

a.interestrateriskpremium.

b.missedcouponrate.

c.liquiditypremium.

d.yieldtomaturity.

e.defaultriskpremium.

TAXABILITYPREMIUM

b35.Theextracompensationinvestorsdemandforacorporatebondoverthatofa

comparablemunicipalbondiscalledthe:

a.compatibilitypremium.

b.taxabilitypremium.

c.couponadjustment.

d.regionaladjustment.

e.termstructure.

LIQUIDITYPREMIUM

c36.Theliquiditypremiumistheportionofanominalinterestratethatrepresents

compensationforthe:

a.differencebetweenshort-termandlong-termtaxrates.

b.differenceinthematuritytermofashort-termversusalong-termbond.

c.lackoftheabilitytosellthebondatitsfairvalueinatimelymanner.

d.changesininterestratesandtheresultingchangesinbondprices.

e.fluctuationinmarketpricesthroughoutthetradingday.

II.CONCEPTS

PARVALUEBOND

d37.Abondthatissellingatparvaluehasa:

I.marketpriceequaltothefacevalue.

II.marketpricewhichexceedsthefacevalue.

III.yieldtomaturitythatexceedsthecouponrate.

IV.yieldtomaturitythatequalsthecouponrate.

a.Ionly

b.IandIIIonly

c.IIandIIIonly

d.IandIVonly

e.IIandIVonly

PARVALUEBOND

d38.Whenabond’syieldtomaturityequalsthebond’scouponrate,thebond:

a.willbecalled.

b.issellingatapremium.

c.hasreacheditsmaturitydate.

d.ispricedatpar.

e.issellingatadiscount.

YIELDTOMATURITY

c39.Adiscountbondhasayieldtomaturitythat:

a.isequaltothecurrentyield.

b.equalsthebond’scouponrate.

c.exceedsthecouponrate.

d.islessthanthecouponrate.

e.equalszero.

YIELDTOMATURITY

e40.Apremiumbondhasacouponratethat:

a.islessthantheyieldtomaturity.

b.equalszero.

c.mustbevariable.

d.equalsthecurrentyield.

e.exceedstheyieldtomaturity.

TOTALBONDVALUE

e41.Thetotalvalueofabondisequaltothe:

a.futurevalue