Chapter 7 Flashcards
1
Q
A bond’s coupon rate is defined as
A
the annual coupon payment of a bond divided by the bond’s face value.
2
Q
A bond will sell at a premium when its coupon interest rate
A
exceeds the market interest rate on similar bonds.
3
Q
The yield to maturity of a bond never changes. T or F?
A
False. A yield to maturity of a bond changes as and when interest rates change.
4
Q
In regard to interest rate risk, shorter-term bonds
A
have less interest rate risk than longer-term bonds.
5
Q
The default risk premium is based on the probability that a bond issuer will not fulfill all of a bond’s contractual provisions. T or F?
A
True
6
Q
If the yield curve has a positive slope
A
interest rates are expected to be higher in the future.
