31. Which one of the following risk premiums
compensates for the possibility of nonpayment by the bond issuer?
A. default risk
B. taxability
C. liquidity
D. inflation
E. interest rate risk
32. The taxability risk premium compensates bond
holders for which one of the following?
A. yield decreases in response to market changes
B. lack of coupon payments
C. possibility of default
D. a bond’s unfavorable tax status
E. decrease in a municipality’s credit rating
33. The liquidity premium is compensation to investors
for:
A. purchasing a bond in the secondary market.
B. the lack of an active market wherein a bond can be sold for its actual
value.
C. acquiring a bond with an unfavorable tax status.
D. redeeming a bond prior to maturity.
E. purchasing a bond that has defaulted on its coupon payments.
34. An 8 percent corporate bond that pays interest
semi-annually was issued last year. Which two of the following most likely
apply to this bond today if the current yield-to-maturity is 7 percent?
I. a structure as an interest-only loan
II. a current yield that equals the coupon rate
III. a yield-to-maturity equal to the coupon rate
IV. a market price that differs from the face value
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only
35. A bond has a market price that exceeds its face
value. Which of the following features currently apply to this bond?
I. discounted price
II. premium price
III. yield-to-maturity that exceeds the coupon rate
IV. yield-to-maturity that is less than the coupon rate
A. III only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
36. All else constant, a bond will sell at _____ when
the coupon rate is _____ the yield to maturity.
A. a premium; less than
B. a premium; equal to
C. a discount; less than
D. a discount; higher than
E. par; less than
37. The Walthers Company has a semi-annual coupon bond
outstanding. An increase in the market rate of interest will have which one of
the following effects on this bond?
A. increase the coupon rate
B. decrease the coupon rate
C. increase the market price
D. decrease the market price
E. increase the time period
38. Which of the following are characteristics of a
premium bond?
I. coupon rate < yield-to-maturity
II. coupon rate > yield-to-maturity
III. coupon rate < current yield
IV. coupon rate > current yield
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
39. Which of the following relationships apply to a
par value bond?
I. coupon rate < yield-to-maturity
II. current yield = yield-to-maturity
III. market price = call price
IV. market price = face value
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and III only
E. II, III, and IV only
40. Which one of the following relationships is stated
correctly?
A. The coupon rate exceeds the current yield when a bond sells at a
discount.
B. The call price must equal the par value.
C. An increase in market rates increases the market price of a bond.
D. Decreasing the time to maturity increases the price of a discount bond,
all else constant.
E. Increasing the coupon rate decreases the current yield, all else
constant.
