FIN 3414 Exam 2

According to the Fisher effect, a decrease in the rate of inflation will

decrease the nominal rate but not affect the real rate.

The lowest Moody’s bond rating that is considered to be an investment-grade rating is

Baa.

Bonds backed by assets with long-term payments are referred to as

securitized bonds.

Which of the following items are generally included in a bond indenture?

Security description and basic terms

For tax purposes, the implicit annual interest for any one year on a zero coupon bond is equal to

the annual change in the bond's value as determined by amortizing the loan.

Interest rate risk increases as

the coupon payment decreases.

If the bondholder has any rights that can force repayment of the bond prior to maturity, the bond

has a put provision.

A convertible bond can be exchanged for

shares of company stock.

The yield to maturity on a bond is the rate

of return currently required by the market.

Newspaper bond quotes are least apt to list a bond’s

par value.

All else constant, a bond will sell at _____________when the yield to maturity is _____________the coupon rate.

a discount; higher than

The overall level of interest rates is primarily affected by the

real rate.

A firm’s bonds have a coupon rate of 5 percent, pay interest semiannually, and sell at par. Each of these bonds has a market price of _____________and interest payments of _____________.

$1,000; $25

Which one of the following items is included in the term structure of interest rates and remains constant over the term?

Real rate of interest

Floating-rate bonds generally have

both a put provision and a collar.