The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

A) Face rate.

B) Yield rate.

C) Market rate.

D) Stated rate.

Answer: D

Which of the following is true for bonds issued at a discount?

A) The stated interest rate is greater than the market interest rate.

B) The market interest rate is greater than the stated interest rate.

C) The stated interest rate and the market interest rate are equal.

D) The stated interest rate and the market interest rate are unrelated.

Answer: B

The true interest rate used by investors to value a bond is called the:

A) Face interest rate.

B) Cash payment rate.

C) Market interest rate.

D) Stated interest rate.

Answer: C

Given the information below, which bond(s) will be issued at a discount?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 5 % 7 % 12 % 10 %

Market Rate of Return 7 % 8 % 12 % 9 %

A) Bond 1.

B) Bond 2.

C) Bond 4.

D) Bonds 1 and 2.

Answer: D

Given the information below, which bond(s) will be issued at a premium?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 5 % 10 % 7 % 10 %

Market Rate of Return 7 % 8 % 7 % 9 %

A) Bond 1.

B) Bond 2.

C) Bond 3.

D) Bonds 2 and 4.

Answer: D

Given the information below, which bond(s) will be issued at a discount?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 10 % 8 % 12 % 12 %

Market Rate of Return 12 % 8 % 15 % 10 %

A) Bond 1.

B) Bond 3.

C) Bonds 2 and 4.

D) Bonds 1 and 3.

Answer: D

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

A) Both bonds will sell for the same amount.

B) Bond X will sell for more than Bond Y.

C) Bond Y will sell for more than Bond X.

D) Both bonds will sell at a premium.

Answer: B

Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the issue price of the bond (rounded to nearest whole dollar?

A) $83,920.

B) $46,320.

C) $53,605.

D) $50,000.

Answer: B

Given the information below, which bond(s) will be issued at a premium?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 7 % 12 % 10 % 8 %

Market Rate of Return 8 % 10 % 10 % 9 %

A) Bond 1.

B) Bond 2.

C) Bond 3.

D) Bonds 2 and 4.

Answer: B

Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years

Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond (rounded to nearest whole dollar)?

A) $83,920.

B) $46,320.

C) $54,055.

D) $50,000.

Answer: C

A $500,000 bond issue sold for $510,000. Therefore, the bonds:

A) Sold at a premium because the stated interest rate was higher than the market rate.

B) Sold for the $500,000 face amount plus $10,000 of accrued interest.

C) Sold at a discount because the stated interest rate was higher than the market rate.

D) Sold at a premium because the market interest rate was higher than the stated rate.

Answer: A

A $500,000 bond issue sold for $490,000. Therefore, the bonds:

A) Sold at a discount because the stated interest rate was higher than the market rate.

B) Sold for the $500,000 face amount less $10,000 of accrued interest.

C) Sold at a premium because the stated interest rate was higher than the market rate.

D) Sold at a discount because the market interest rate was higher than the stated rate.

Answer: D

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%. These bonds will sell at a price that is:

A) Equal to $500,000.

B) More than $500,000.

C) Less than $500,000.

D) The answer cannot be determined from the information provided.

Answer: A

Convertible bonds:

A) Provide potential benefits only to the issuer.

B) Provide potential benefits only to the investor.

C) Provide potential benefits to both the issuer and the investor.

D) Provide no potential benefits.

Answer: C

For a bond issue that sells for more than the bond face amount, the stated interest rate is:

A) The actual yield rates.

B) The prime rate.

C) More than the market rate.

D) Less than the market rate.

Answer: C

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

A) Equal to $500,000.

B) More than $500,000.

C) Less than $500,000.

D) The answer cannot be determined from the information provided.

Answer: C

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is:

A) Equal to $500,000.

B) More than $500,000.

C) Less than $500,000.

D) The answer cannot be determined from the information provided.

Answer: B

Serial bonds are:

A) Bonds backed by collateral.

B) Bonds that mature in installments.

C) Bonds with greater risk.

D) Bonds issued below the face amount.

Answer: B

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

A) Secured and term.

B) Secured and serial.

C) Unsecured and term.

D) Unsecured and serial.

Answer: B

Which of the following is not true regarding callable bonds?

A) This feature allows the issuer to repay the bonds before their scheduled maturity date.

B) This feature helps protect the issuer against future decreases in interest rates.

C) This feature usually allows the issuer to repay bonds just below face value.

D) This feature benefits the issuer more when the bond's stated rate is 8% and the market interest rate is 5%.

Answer: C

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common?

A) Secured and term.

B) Secured and serial.

C) Unsecured and term.

D) Unsecured and serial.

Answer: C