1. Which one of the following statements is NOT true? A) Prices in the corporate bond market tend to be more volatile than the markets for stocks or money market securities. B) Corporate bonds are more marketable than the securities that have higher daily trading volumes. C) The market for corporate bonds is thin compared to the market for corporate stocks. D) The largest investors in corporate bonds are life insurance companies and pension funds. 2. Which of the following statements is true of zero coupon bonds? A) Zero coupon bonds have no coupon payments over its life and only offer a single payment at maturity. B) Zero coupon bonds sell well below their face value (at a deep discount) because they offer no coupons. C) The most frequent and regular issuer of zero coupon securities is the U.S. Treasury Department. D) All of the above are true. 3. Which of the following statements is true of convertible bonds? A) The most significant disadvantage to a corporation of issuing convertible bonds in contrast to vanilla bonds is that they increase the cash that the firm must use to make interest payments. B) The typical conversion ratio is set so that the firms stock price must appreciate 5% or less before it is profitable for the holder to convert the bond to stock. C) Firms that issue convertible bonds can do so at a lower interest rate. D) The typical issue of convertible bonds allows the holder of the bond to convert it to preferred stock. 4. Which one of the following statements about bonds is NOT true? A) To compute a bond's price, one needs to calculate the present value of the bond's expected cash flows. B) The value, or price, of any asset is the future value of its cash flows. C) The required rate of return, or discount rate, for a bond is the market interest rate called the bond's yield to maturity D) The expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be received. 5. Bonds sell at a discount when the market rate of interest is: A) less than the bond's coupon rate. B) greater than the bond's coupon rate. C) equal to the bond's coupon rate. D) None of the above is true. 6. Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at a price of $943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. Should she buy the bonds at the offered price? (Do not round intermediate computations. Round your final answer to the nearest dollar.) A) Yes, the bond is worth more at $1,015. B) No, the bond is only worth $921. C) Yes, the bond is worth more at $951. D) No, the bond is only worth $912. 7. Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.) A) $951 B) $882 C) $1,033 D) $1,195 8. Robertsons, Inc., is planning to expand its specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds? (Round your answer to the nearest dollar.) A) $308 B) $383 C) $803 D) $866 9. The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments: A) exceed the price of the bond. B) equal to zero. C) equal to the price of the bond. D) less than the price of the bond. 10. Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.) A) 11.5% B) 11.8% C) 12.5% D) 12.2% 11. Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.) A) 7% B) 8% C) 11% D) 10% 12. Which one of the following statements is NOT true? A) Interest rate risk is the risk that bond prices will change as interest rates change. B) Interest rate changes and bond prices are inversely related. C) As interest rates increase, bond prices increase. D) Long-term bonds are more price volatile than short-term bonds of similar risk. 13. Which of the following statements is true? A) For a given change in market interest rates, the prices of higher-coupon bonds change more than the prices of lower-coupon bonds. B) If market interest rates rise, a 1-year bond will fall in value more than a 10-year bond. C) If interest rates rise, bond prices will rise. D) If market interest rates rise, a 10-year bond will fall in value more than a 1-year bond. 14. Which of the following statements is NOT true? A) The risk that the lender may not receive payments as promised is called default risk. B) Investors must pay a premium to purchase a security that exposes them to default risk. C) U.S. Treasury securities are the best proxy measure for the risk-free rate. D) All of the above are true statements. 15. The three economic factors that affect the shape of the yield curve are: A) the real rate of interest, the expected rate of inflation, and marketability. B) the real rate of interest, the expected rate of inflation, and interest rate risk. C) the nominal rate of interest, the expected rate of inflation, and default risk. D) the real rate of interest, the nominal rate of interest, and currency risk.