1) How is a bond's value determined?Answer

a.

By finding the present value of the bond's expected coupon payments at the bond's required rate of return.

b.

By finding the present value of the bond's expected coupon payments and par value at the bond's required rate of return.

c.

By finding the present value of the bond's expected coupon payments at the bond's coupon rate.

d.

By finding the present value of the bond's expected coupon payments and par value at the bond's coupon rate.

2) If a bond's required return falls, what will happen to its price? Answer

a.

It will fall only if the bond sells at a premium.

b.

It will remain the same.

c.

It will rise.

d.

It will fall

3) A 10-year semi-annual coupon bond with an $1000 par value pays an annual coupon rate of 6% and the market requires 8% APR. What is the appropriate coupon, time period, and discount rate respectively that needs to be used to correctly value this bond?

	a.	$60, 10, & 8%
	b.	$30, 10, & 4%
	c.	$30, 20, & 4%
	d.	$30, 20, & 8%

4) Which of the following can cause an increase in the price of a discount bond? Answer

a.

An increase in the YTM.

b.

A decrease in the YTM.

c.

The passage of time.

d.

Both A and C

e.

Both B and C

5) Which of the following bonds would have the most interest rate risk?

Answer

a.

A 10-year, 10% coupon bond.

b.

A 10-year, zero coupon bond.

c.

A 20-year, 10% coupon bond.

d.

A 20-year zero coupon bond.

6) Which of the following bonds would have the highest required rate of return assuming each bond has the same time to maturity? Answer

	a.	An AA-rated non-callable bond
	b.	An AA-rated callable bond
	c.	A BB-rated non-callable bond
	d.	A BB-rated callable bond