The yield to maturity for a bond is equivalent to the market's required return on the bond and is based on risk but the required return on a share of stock ks not based on risk True False
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- The coupon rate is calculated on the bond's face value (or par value), not on the issue price or market value. Choices: true or falseThe coupon rate is greater than the yield to maturity when a bond sells at a premium. Select one: True FalseWhich of the following statements is CORRECT? a. The yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains yield; it has a zero current interest yield. b. The yield to maturity on a coupon bond that sells at its par value consists entirely of a current interest yield; it has a zero expected capital gains yield. c. Rising inflation makes the actual yield to maturity on a bond greater than a quoted yield to maturity that is based on market prices. d. The market value of a bond will always approach its par value as its maturity date approaches. This holds true even if the firm has filed for bankruptcy. e. The expected capital gains yield on a bond will always be zero or positive because no investor would purchase a bond with an expected capital loss.
- Which of the following is NOT a defining quality of a standard bond cash flow? a) Coupon b) Maturity c) Perpetuity Cash Flow d) Face ValueThe yield to maturity of a company’s bonds can be higher than its cost of preferred stock TRUE FALSEWhich of the following statement on bond valuation is correct? A. If bond price is greater than bond face value, the bond is mispriced and no investor will be interested in the bond. B. If YTM is greater than coupon rate, the bond price is greater than the bond face value. C. If the coupon rate is greater than the YTM, the bond price is less than the bond face value. D. If the coupon rate is less than the YTM, the bond price is less than the bond face value.
- an investment in a coupon bond will provide the investor with a return equal to the bond's yield to maturity at the time of purchase if:The bond is not called for redemption at a price that exceeds its par valueWhich 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.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
- An investor invests in a fixed-rate bond because: His calculated value for the bond is greater than the selling price His calculated yield is greater than the yield posted in the market He is happy with the yield of the bond when considering its risk None of the aboveThe process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. This also results from the relationship between a bond’s coupon rate and a bondholder’s required rate of return. Remember, a bond’s coupon rate partially determines the interest-based return that a bond Q1____pay, and a bondholder’s required return reflects the return that a bondholder Q2._______to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s coupon rate, the bondholder’s…The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. This also results from the relationship between a bond’s coupon rate and a bondholder’s required rate of return. (1) Remember, a bond’s coupon rate partially determines the interest-based return that a bond ________ pay, and a bondholder’s required return reflects the return that a bondholder (2) ___________to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s coupon rate, the bondholder’s…