Call provision Answer: b Diff: E
9. Other things held constant, if a bond indenture contains a call provision, the yield to maturity that would exist without such a call provision will generally be the YTM with a call provision.
a. Higher than.
b. Lower than.
c. The same as.
d. Either higher or lower (depending on the level of the call premium) than.
e. Unrelated to.
Bond coupon rate Answer: c Diff: E
10. All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a
a. Sinking fund.
b. Restrictive covenant.
c. Call provision.
d. Change in rating from Aa to Aaa.
e. None of the statements above. (All may reduce the required coupon rate.)
Bond concepts Answer: a Diff: E
11. Which of the following statements is most correct?
a. All else equal, if a bond’s yield to maturity increases, its price will fall.
b. All else equal, if a bond’s yield to maturity increases, its current yield will fall.
c. If a bond’s yield to maturity exceeds the coupon rate, the bond will sell at a premium over par.
d. All of the statements above are correct.
e. None of the statements above is correct.
Bond concepts Answer: c Diff: E
12. Which of the following statements is most correct?
a. If a bond’s yield to maturity exceeds its annual coupon, then the bond will be trading at a premium.
b. If interest rates increase, the relative price change of a 10-year coupon bond will be greater than the relative price change of a 10-year zero coupon bond.
c. If a coupon bond is selling at par, its current yield equals its yield to maturity.
d. Statements a and c are correct.
e. None of the statements above is correct.
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