Chapter 08 Question 1 Which one of the following statements is NOT true? a) Competition among investors is an important driver of informational efficiency. b) If market prices reflect all relevant information about securities at a particular point in time, the market is informationally efficient. c) In an informationally efficient market, market prices adjust quickly to new information about a security as it becomes available. d) All of these are true. Question 2 Which one of the following statements about vanilla bonds is NOT true? a) Strong-form market efficiency implies that investors who have access to inside or private information will be able to earn abnormal returns. b) None of these. c) Weak-form market efficiency implies that investors who have access to inside or private information will be able to earn abnormal returns. d) Semistrong-form market efficiency implies that investors who have access to inside or private information will be able to earn abnormal returns. Question 3 Which one of the following statements about vanilla bonds is NOT true? a) The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value. b) They have no special provisions. c) The face value, or par value, for most corporate bonds is $1,000. d) Coupon payments are usually made quarterly. Question 4 Bonds sell at a discount off the par value when market rates for similar bonds are a) Equal to the bond's coupon rate. b) Less than the bond's coupon rate. c) Market rates are irrelevant in determining a bond's price. d) Greater than the bond's coupon rate. Question 5 Which one of the following statements is NOT true? a) The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. b) All of these are true. c) A bond's yield to maturity changes daily as interest rates increase or decrease. d) It is the yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised. Question 6 Most secondary market transactions for corporate bonds take place on the New York Stock Exchange. a) True b) False Question 7 Corporate bonds have a thin market relative to stocks. a) True b) False Question 8 The face or par value for bonds is the amount paid to bondholders at maturity and is usually equal to $1,000. a) True b) False Question 9 Interest rate risk is the risk that bond prices will fluctuate as interest rate changes. a) True b) False Question 10 All other things being equal, a given change in the interest rates will have a greater impact on the price of a low-coupon bond than a higher-coupon bond with the same maturity. a) False b) True