2

a.

The yield to maturity on a bond

I.

is fixed in the indenture

II.

is lower for higher risk bonds

III.

is the required rate of return for bonds

IV.

is generally equal to the coupon interest rate

V. None of the options specified here

b.

Benjamin Corp. bonds pays an annual coupon rate of 10% on a face value of $1,000. If investors' requiredrate of return is now 8% on these bonds, they will be priced at:

I.

par value, which means market price equals face value

II.

a premium over par value, which means market price will be higher than face value

III.

a discount to par value, which means market price will be less than face value

IV.

can be at a premium or disount from face value

None of the options specified here

c.

A bond will sell at a discount (below par value) if:

	I.	if the required rate of return is less than the coupon rate of the bond
	II.	if the coupon rate of the bond is more than the required rate of return of the bond
	III.	required rate of return equals coupon rate of the bond
	IV.	required rate of return is higher than the coupon rate of the bond
		None of the options specified here d. If market interest rates ______, bond prices _________. I. increase; increase II. increase; decline III. decline; decline IV. decline; increase