Question

1)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. 2) 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 3) A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of and interest payments in the amount of each. A) $1,006; $60 B) $1,060; $30 C) $1,060; $60 D) $1,000; $30 E) $1,000; $60 when the yield to maturity is the 4) All else constant, a bond will sell at coupon rate. A) a premium; greater than B) a premium; equal to C) at par; greater than D) at par, less than E) a discount; greater than 5) Aspens is preparing a bond offering with a coupon rate of 5.5 percent. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest annually. Which one of the following statements is correct? Assume a face value of $1,000. A) The bonds will pay 19 interest payments and one principal payment. B) The bonds will initially sell at a discount. C) At maturity, the bonds will pay a final payment of $1,027.50. 1

Answer 1

1) The principal amount of the bond that is repaid at the end of the loan term is called the Face value of bond.

So, the correct option is option B.

2) A bond that sells at it's value is called a par value bond.

So, the correct option is option A.

3) Since, the bond is sold at par. The bond will sell for $1000 at maturity.

The coupon paid will be $30 after every 6 months.

So, the correct option is option D.

4) A bond is trade at premium when the coupon rate > yield to maturity

A bond will trade at par when the coupon rate = YTM

A bond will trade at discount when the discount rate < YTM

So, the correct option is option E.

As the value of bond will be :

= coupon rate 1 / (1 + YTM)^1 + coupon rate 2/ (1 + YTM)^2 +.... coupon rate N/ (1 + YTM)^N

So, higher the YTM, the bond's value is less than the face value.