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Chapter-1
Financial Objectives
Self Assessment Questions
1. You receive a check for $100 two years from today. The discounted present value of this $100 is:
a. $100/(1+i)2
b. $100*(1+i)
c.
$100*(1+i)2
d. $100/(1+i)
2 .Why do current prices on previously issued bonds offered for resale change when the market
interest rate changes?
a. Because old bonds cannot sell at face value today.
b. Because no buyer of bonds today will accept a lower yield to maturity than the
market rate, and no buyer will be able to get a higher yield.
c.
Because new bonds are always preferred to old bonds.
d. Because the marketplace does not provide enough information to price bonds
accurately.
3 .If a bond sells at a premium, where price exceeds face value, then we would expect to see:
a. market interest rate the same as the coupon rate.
b. market interest rates above the coupon rate.
c.
market interest rates could be the same, higher, or lower than the coupon rate.
d. market interest rates below the coupon rate.
4 .As bond prices increase:
a. yields to maturity decrease.
b. yields to maturity can rise, fall, or not change.
c.
yields to maturity do not change.
d. yields to maturity increase.
5 .For a $1000 one year discount bond with a price of $975, the yield to maturity is
a. $975/$1000
b. ($1000 – $975)/($1000)
c.
$1000/$975
d. ($1000 – $975)/$975
6 .For a coupon bond, the current yield is calculated as:
a. Coupon Payment/((Price + Face Value)/2)
b. The current yield is the same as the coupon rate.
c.
Coupon Payment/Price
d. Coupon Payment/Face Value
7 .If the interest rate rises one basis point, then it has gone from 4% to
a. 4.25%.
b. 4.01%.
c.
4.1%.
d. 5%.
8 .The return on a bond is
a. current yield – rate of capital gain.
b. coupon rate + rate of capital gain.
c.
coupon rate – rate of capital gain.
d. current yield + rate of capital gain.
9 .Interest rate risk is:
a. the risk the coupon payment will rise.
b. the risk the coupon rate on the bond will fall.
c.
the...