Frl 301 Review

1. | 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 |

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3. The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? 

A.  | note |

B.  | discounted |

C.  | zero-coupon |

D.  | callable |

E.  | debenture |

4. | Real rates are defined as nominal rates that have been adjusted for which of the following? 

A.  | inflation |

B.  | default risk |

C.  | accrued interest |

D.  | interest rate risk |

E.  | both inflation and interest rate risk |

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5. | The Fisher effect is defined as the relationship between which of the following variables? 

A.  | default risk premium, inflation risk premium, and real rates |

B.  | nominal rates, real rates, and interest rate risk premium |

C.  | interest rate risk premium, real rates, and default risk premium |

D.  | real rates, inflation rates, and nominal rates |

E. real rates, interest rate risk premium, and nominal rates | |

6. | Which one of the following premiums is compensation for expected future inflation? 

  A.  | default risk |

B.  | taxability |

C.  | liquidity |

D.  | inflation |

E.  | interest rate risk |

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7. | A Treasury yield curve plots Treasury interest rates relative to which one of the following? 

  A.  | market rates |

B.  | comparable corporate bond rates |

C.  | the risk-free rate |

D.  | inflation |

E.  | maturity |

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8. | All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. 

A.  | a premium; less than |

B.  | a premium; equal to |

C.  | a discount; less than |

D.  | a discount; higher than |

E.  | par; less...