A bond with a face value of $1,000 has annual coupon payments of $100 and was issued seven years ago. The bond currently sells for $1,085, has eight years left to maturity. This bond's ________ must be less than 10%.
A) current yield
B) coupon rate
C) current yield and coupon rate
D) yield to maturity and current yield
Answer: D
A bond has a coupon rate of 6% paid semi-annually, a par value of $1,000, and matures tomorrow. The bond will sell for
A) approximately $1,030 .
B) approximately $1,000.
C) approximately $1,060.
D) The price cannot be estimated without knowing the market rate of interest.
Which of the following statements about bonds is true?
A) Bond prices move in the same direction as market interest rates.
B) If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds.
C) Long-term bonds are less risky than short-term bonds.
D) If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value.
E) None of the above.
Which of the following statements about bonds is true?
A) As the maturity date of a bond approaches, the market value of a bond will become more volatile.
B) Long-term bonds have less interest rate risk than do short-term bonds.
C) Bond prices move in the same direction as market interest rates.
D) If market interest rates are above a bond's coupon interest rate, then the bond will sell below its par value.
Which of the following statements about bonds is true?
A) The market value of a bond moves in the opposite direction of market interest rates.
B) As the maturity date of a bond approaches, the market value of a bond will become more volatile.
C) Long-term bonds are less risky than short-term bonds.
D) If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value.
E) None of the above.
A bond investor seeking capital gains should purchase
A) bonds with short maturity dates when interest rates are expected to rise.
B) bonds with distant maturity dates when interest rates are expected to rise.
C) bonds with short maturity dates when interest rates are expected to decline.
D) bonds with distant maturity dates when interest rates are expected to decline.
Which of the following statements about bonds is true?
A) If market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value.
B) Long-term bonds have less interest rate risk than do short-term bonds.
C) Bond prices move in the same direction as market interest rates.
D) As the maturity date of a bond approaches, the market value of a bond will become more volatile.
Bonds cannot be worth less than their book value.
Answer: FALSE
So long as a bond sells for an amount above its par value, the coupon interest rate and yield to maturity remain equal.
Answer: FALSE
As market interest rates increase, bond prices decrease.
Answer: TRUE
Bonds that sell at a discount have a coupon rate lower than the market interest rate.
Answer: TRUE
Bonds with a longer time to maturity have less interest rate risk.
Answer: FALSE
As investors' required rate of return on a bond increases, the value of the bond increases also.
Answer: FALSE
As the maturity date of a bond approaches, the bond's market value approaches its par value.
Answer: TRUE
Shorter-term bonds have greater interest rate risk than do longer-term bonds.
Answer: FALSE
Why are longer-term bonds more sensitive to changes in interest rates than shorter-term bonds?
Answer: Longer-term bonds are more price-sensitive to changes in interest rates because there are more cash flows remaining whose values are affected by the change. Since shorter-term bonds have fewer cash flows remaining, price sensitivity to change in interest rates will be lower. In addition, as the bond gets closer to maturity, the present value of the maturity payment gets less and less volatile. Duration is a measure of how responsive a bond's price is to changing interest rates. Duration is higher for long-term bonds than for short-term bonds.
