CHAPTER 5
Interest Rate and Bond Valuation Multiple Choice Questions
I. DEFINITIONS
COUPON
a 1. The stated interest payment, in dollars, made on a bond each period is called the bond’s:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
Difficulty level: Easy
FACE VALUE
b 2. The principal amount of a bond that is repaid at the end of the loan term is called the bond’s:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
Difficulty level: Easy
MATURITY
c 3. The specifie
d dat
e on which the principal amount o
f a bond is repaid is called the bond’s:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
Difficulty level: Easy
YIELD TO MATURITY
d 4. Th
e rate o
f return required by investors in the market for ownin
g a bond is called the:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
Difficulty level: Easy
COUPON RATE
e 5. The annual coupon o
f a bond divided by its face value is called the bond’s:
a. coupon.
b. face value.
d. yield to maturity.
e. coupon rate.
Difficulty level: Easy
PAR BONDS
a 6. A bond with a face value of $1,000 that sells for $1,000 in the market is called a _____ bond.
a. par value
b. discount
c. premium
d. zero coupon
e. floating rate
Difficulty level: Easy
DISCOUNT BONDS
b 7. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a
_____ bond.
a. par
b. discount
c. premium
d. zero coupon
e. floating rate
Difficulty level: Easy
PREMIUM BONDS
c 8. A bon
d with a fac
e value o
f $1,000 that sells for more than $1,000 in the market is called a
_____ bond.
a. par
b. discount
c. premium
d. zero coupon
e. floating rate
Difficulty level: Easy
UNFUNDED DEBT
d 9. Th
e unfunded debt o
f a firm is generally understood to mean the firm’s:
a. preferred stock.
b. debts that mature in more than one year.
c. debentures.
d. debts that mature in less than one year.
e. secured debt.
Difficulty level: Easy
INDENTURE
a 10. The written, legally binding agreement between the corporate borrower and the lender detailing
the terms of a bond issue is called the:
