1. When the price of a bond equals the face value the: A. yield to maturity will

Question

1. When the price of a bond equals the face value the:

A. yield to maturity will be above the coupon rate.

B. yield to maturity will be below the coupon rate.

C. current yield is equal to the coupon rate.

2. If the purchase price of a bond exceeds the face value, the yield to maturity:

A. is greater than the coupon rate because the capital gain is positive.

B. will equal the current yield.

C. will be less than the coupon rate because the capital gain will be negative.

D. will be greater than the current yield.

3. In calculating the current yield for a bond the:

A. coupon payment is ignored.

B. present value of the capital gain/loss is ignored.

C. present value of the final payment is the only important consideration.

D. present value of the coupon payments is the only important consideration.

4.In reading bond quotes:

A. the bid price is usually above the asked price.

B. the asked price is fixed over the life of the bond.

C. the asked price is usually above the bid price.

D. bid and asked prices must be equal as set forth by SEC regulations.

5. The holding period return on a bond:

A. can never be more than the yield to maturity.

B. will equal the yield to maturity if the bond is purchased for face value and sold at a lower price.

C. will be less than the yield to maturity if the bond is sold for more than face value.

D. will be less than the yield to maturity if the bond is sold for less than face value.

Explanation / Answer

1)

c) current yield is equal to coupon rate

2)

c)will be less than the coupon rate

3)

b)

present value of capital gains is ignored

4)

the bid price is above asked price

5)

c)

will be less than the yield to maturity if the bond is sold for more than face value

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