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 specified date on which the principal amount of 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. The rate of return required by investors in the market for owning 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 of a bond divided by its face value is called the bond’s:
a. coupon.
b. face value.
c. maturity.
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 bond with a face value of $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. The unfunded debt of a firm is generally understood to mean the firm’s:
a. preferred stock.
b. debts that mature in more than one yea
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