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1)Which of the following is NOT true regarding bonds?
Group of answer choices
A)If a bond is selling at a discount, then the current yield is greater than the yield-to-maturity.
B)An increase in market interest rates leads to a decrease in
C)If the coupon rate on a bond is lower than the yield-to-maturity, the bond sells at a discount.
D)If the coupon rate on a bond equals the yield-to-maturity, then the bond sells at par.
2)When calculating free cash flows, which of the following statements is NOT true regarding the
Group of answer choices
A)As an accrual, depreciation does not factor into
B)Depreciation is an accrual, not a cash flow.
C)Depreciation create a tax shield.
D)Depreciation is first removed and the subsequently added back in when calculating free cash flows.
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- Which of the following is NOT true regarding bonds? O If a bond is selling at a discount, then the current yield is greater than the yield-to-maturity. An increase in market interest rates leads to a decrease in bond prices. O If the coupon rate on a bond is lower than the yield-to-maturity, the bond sells at a discount. O If the coupon rate on a bond equals the yield-to-maturity, then the bond sells at par.Which of the following bonds has the least reinvestment risk?A. A bond that has a higher coupon rate than the yield-to-maturityB. A bond that has a lower coupon rate than the yield-to-maturityC. A zero-coupon bondWhich of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.
- Under what situation might a bond discount arise when issuing bonds? Select one: a. The coupon rate is less than the effective or yield rate. b. The effective or yield rate is less than the coupon rate. c. The coupon rate is less than the cash rate of interest. d. The effective or yield rate is less than the market rate of interest.2. For cach of the following situation, identify whether a bond would be considered a premium bond, a discounted bond, or a par bond. a. A bond's current market price is greater than its face value. b. A bond's coupon rate is equal to its yield to maturity. c. A bond's coupon rate is less than its required rate of return. d. A bond's coupon rate is less than its yield to maturity. e. A bond's coupon rate is greater than its yield to maturity. f. A bond's fair present value is less than its face value. Answer: a. ..... b. с. d. e. f.1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.
- 1. When the market interest rate rises, what happens to bond prices? Group of answer choices They rise They stay the same Cannot be determined They fall 2. A bond discount occurs when: Group of answer choices The price of a bond is above its face value. The price of a bond is above its maturity value. The price of a bond is below its face value. The price of the bond is equal to a bond's face value. 3. When a bond sells for a premium, Group of answer choices The price is above the face value The price is equal to the face value. The price is below the face value The price is below the maturity value. 4. A bond has a face value of $100,000 and a price of $97,000. The journal entry at the date of issuance would include: Group of answer choices A credit to Bond Discount of 3,000 A debit to Bond Discount of 97,000 A debit to Bond Discount of 3,000 A credit to Bond Premium of 3,000 5. A bond has a face…1. Under what conditions would the yield-to-maturity and current yield of a bond be equal? Group of answer choices a. The bond is priced at par b. The bond is priced at a discount c. Insufficient information d. The bond is priced at a premium 2. Which of the following is correct about the risk-free rate as used in valuing equity instruments? Group of answer choices a. The risk-free rate accounts for the rate of return or yield of a government instrument which does not carry any risk. b. The risk-free rate used for valuing equity instruments is normally the yield of a long-term government security. c. The risk-free rate used for valuing equity instruments is the same as that used for valuing short-term debt instruments. d. The risk-free rate accounts for the risks related to government securities which is composed of credit-spread, maturity risk premium and the real risk-free rate. 3. Berg Inc. has just paid a dividend of P2.00. Its stock is now selling…3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following:
- A "discount" bond's price is less than it's par value because the coupon rate is less than the yield to maturity. A) True B) FalseWhich of the following statements about the Macaulay duration of a coupon bond is true? Select one alternative: a.. The duration does not change after the bond is issued. b. The duration will decrease as the yield to maturity decreases. c. None of the other statements is true. d. The duration can precisely predict the price change of the bond for any interest rate change.What will be the price of a bond in which the YTM is higher than the coupon rate? a. Below face value b. At face value c. Above face value d. Cannot be determined
