Chapter 6 Flashcards
(26 cards)
The coupon value of a bond is the face value of the bond
F. Coupon Value of the bond refers to the annual interest payment on the bond. It is calculated as a percent on face value
A bond is said to mature on the date when the issuer repays its notional value ( notional value is like face value)
T
Which of the following best illustrates why a bond is a type of loan?
A) The issuers of bonds make regular payments to bondholders.
B) When a company issues a bond, the buyer of that bond becomes an owner of the issuing company.
C) Funds raised are used to finance long-term projects.
D) When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future
D
Which of the following is typically included in a bond certificate?
A) Terms of the bond and amounts and dates of all payments to be made.
B) Stock market performance data.
C) Bondholder’s favorite color.
D) Historical weather data of the bond issuer’s location.
A
Maturity date
Final repayment due
Payments
regular payment and lum sum payment at maturity day
Term
Time remaining till the final repayment date
Which of the following statements regarding bonds and their terms is FALSE?
A) Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment.
B) By convention, the coupon rate is expressed as an effective annual rate.
C) Bonds typically make two types of payments to their holders.
D) The time remaining until the repayment date is known as the term of the bond
B
Which of the following is true about the face value of a bond?
A) It is the notional amount we use to compute coupon payments.
B) It is the amount that is repaid at maturity.
C) It is usually denominated in standard increments, such as $1,000.
D) All of the above are true
D
Coupon
The promised interest payments of a bond. Usually paid semiannually, but the frequency is specified in the bond certificate. They are determined by the coupon rate, which is stated on the bond certificate. The amount paid is equal to : ( coupon rate X face value)/(Number of Coupon Payments per Year) make a multiple choice question
What determines the amount of a bond’s coupon payments, and how are they calculated?
A) The bond issuer’s credit rating, and the payments are fixed throughout the bond’s life.
B) The bond’s maturity date, and the payments increase over time.
C) The coupon rate stated on the bond certificate, and the payments are calculated as (coupon rate X face value)/(Number of Coupon Payments per Year).
D) The prevailing interest rates in the market, and the payments are set by the bondholder’s preference.
C
The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date
T
Prior to its maturity date, the price of a zero-coupon bond is its face value
F. The bond’s face value at maturity
How are investors in zero-coupon bonds compensated for making such an investment?
A) Such bonds are purchased at their face value and sold at a premium on a later date.
B) Such bonds make regular interest payments.
C) Such bonds are purchased at a discount, below their face value.
D) Such bonds have a lower face value as compared to other bonds of similar term
C
Treasury bills
are zero coupon U.S government bonds with maturity of up to one year
Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years
F. Reverse
5) Which of the following statements is FALSE?
A) Bond traders typically quote bond prices rather than bond yields .
B) Treasury bills are zero-coupon bonds.
C) Zero-coupon bonds always trade at a discount.
D) The yield to maturity is typically stated as an annual rate by multiplying the calculated YTM by the number of coupon payment per year, thereby converting it to an APR.
A
Zero-coupon bonds always trade for a discount
T
Which of the following statements is FALSE?
A) The principal or face value of a bond is the notional amount we use to compute the interest payments.
B) Payments are made on bonds until a final repayment date, called the term date of the bond.
C) The coupon rate of a bond is set by the issuer and stated on the bond certificate.
D) The promised interest payments of a bond are called coupons
B
Coupon bonds may trade at a discount or at a premium
T
When the bond price is greater than the face value
Bond trades “ above par” or at a premium”. This occurs when Coupon Rate > Yield to Maturity
When the bond is equal to the face value ( current market price of the bond is the same as its par value ( or Face Value)
Bond trades “ at par”. This occurs when Coupon Rate = Yield to Maturity
When the bond price is less than the face value
Bond trades “ below par” or “ at a discount”. This occurs when Coupon Rate < Yield to Maturity
Which of the following statements is FALSE?
a. If the bonds trades at a discount, and investors who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond.
B) Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at, or very near to, par.
C) Coupon bonds always trade for a discount.
D) At any point in time, changes in market interest rates affect a bond’s yield to maturity and its price
C
