Question
2. Which of the following statements is (are) correct? (x) The face value or par value of a zero coupon bond is the amount of
2. Which of the following statements is (are) correct? (x) The face value or par value of a zero coupon bond is the amount of money that the bond issuer pays the bond holder (owner) at the time of maturity. (y) The issuer of a zero coupon bond borrows money when it sells the bond but the bond issuer does not make any interest payments on the bond. (z) Although zero coupon bonds do not make interest payments the difference between the price paid for the bond and the par value at maturity represents the interest income received over the life of the bond. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (z) only
3. Calculate the price of a zero coupon bond that matures in three years if the market interest rate is 4.75 percent. (Assume semi-annual compounding and $1,000 par value.)
A. $ 828.80
B. $ 831.03
C. $ 868.63
D. $ 932.02
E. more than $932.02 but less than $978.00
Which of the following statements is (are) correct? (x) Bonds can sell at par but they often sell at either a premium or a discount. (y) If the market interest rate on a 5.50 percent coupon bond with 15 years left to maturity is 5.50 percent then the bond is selling at par and it is not a premium bond. (z) If the market interest rate on a 6.25 percent coupon bond with 15 years left to maturity is 5.75 percent then the bond is a discount bond. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (x) only
10. Which of the following statements is (are) correct? (x) Interest rate risk means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments. (y) Junk bonds carry very little risk that the issuer will not make current or future payments. (z) Reinvestment rate risk is the chance that future interest payments will have to be reinvested at a lower interest rate A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (x) only
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