1) P&G Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons, and the yield to maturity is 6.8%, what will the bond sell for?

A. $1,000,00

B. $1,087.25

C. $975.18

D. $1,025.32

E. $1,111.81

2) Which of the following statements is false?

A. Bonds carry no corporate ownership privileges.

B. A bond is a financial contract.

C. Bond prices remain fixed over time.

D. A bond issuer must pay periodic interest.

3) Which of the following statements is true?

A. Generally speaking, bonds are riskier than common stocks.

B. The bond market is greater than the stock market.

C. A bondholder repays principal when the bond matures.

D. Low inflation is expected to have a negative effect on bond prices

4) Which of the following is not an advantage of investing in bonds?

A. Bonds have unlimited profit potential.

B. Bonds are good sources of current income.

C. Bond investments are relatively safe from large losses.

D. Bondholders receive their payments before shareholders can be compensated.

5) When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:

A) a premium.

B) a discount.

C) cannot be determined without more information.

D) face value.

6) Interest rates and bond prices

A) move in the same direction.

B) move in opposite directions.

C) sometimes move in the same direction, sometimes in opposite directions.

D) have no relationship with each other (i.e., they are independent).

7) A bond is currently priced at $885.30. It has a face value of $1,000 and pays a 5% annual coupon. It has 20 years until maturity. What is the yield to maturity of the bond?

A) 5%

B) 6%

C) 7%

D) 4%