Ch 6-Corporate Finance

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford)

Chapter 6 Bonds

6.1 Bond Terminology

1) The coupon value of a bond is the face value of the bond.

Answer: FALSE

Diff: 1 Var: 1

Skill: Conceptual

AACSB Objective: Analytic Skills

Author: DS

Question Status: Previous Edition

2) A bond is said to mature on the date when the issuer repays its notional value.

Answer: TRUE

Diff: 1 Var: 1

Skill: Conceptual

AACSB Objective: Analytic Skills

Author: DS

Question Status: Previous Edition

3) Which of the following best illustrates why a bond is a type of loan?

A) The issuers of bonds make regular payments to bondholders.

B) When a company issues a bond, the buyer of that bond becomes an owner of the issuing company.

C) Funds raised are used to finance long-term projects.

D) When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future.

Answer: D

Diff: 1 Var: 1

Skill: Conceptual

AACSB Objective: Analytic Skills

Author: DS

Question Status: Revised

4) What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?

A) $3.75

B) $11.25

C) $22.50

D) $45.00

Answer: B

Explanation: B) $1000 × 0.045 / 4 = $11.25

Diff: 1 Var: 50+

Skill: Analytical

AACSB Objective: Analytic Skills

Author: DS

Question Status: Revised

5) What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with semiannual payments?

A) $150.00

B) $450

C) $900.00

D) $1800.00

Answer: B

Explanation: B) $10,000 × 0.09/2 = $450

Diff: 1 Var: 50+

Skill: Analytical

AACSB Objective: Analytic Skills

Author: DS

Question Status: Revised

6) A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?

A) a 10-year bond with a face value of $2,000 and a coupon rate of 4.8%...