1. Which of the following statements correctly describes the relationship between a long-term bonds market value, its coupon rate and the relevant yield to maturity?

a. None of the other statements are correct

b. A government bond with a fixed coupon rate may be valued below its face value even though the promised cash flows are effectively riskless.

c. More than one of the other statements are correct

d. When bonds are initially issued, the coupon rate is generally set equal to the required yield to maturity so that the company can issue the bonds at their face value.

e. If at any point in the bonds life its coupon rate is less than the market determined yield to maturity, its market value at that time will be less than the face value of the bond.

2. Which of the following statements correctly describes aspects of simple interest as discussed in lectures?

a. A loan that has been created that pays simple interest, will involve interest payments that are calculated on the basis of both the principal amount borrowed as well as any interest that has accumulated to date.

b. With simple interest, the future value of any cash flow is simply its current value discounted back at a rate of r% per period for n periods.

c. By convention, simple interest is the main method used for the pricing of long-term bonds.

d. More than one of the other statements are correct

e. None of the other statements are correct