**8.1****Bond Cash Flows, Prices, and Yields**

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1)

Which of the following statements is false?

A)

Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.

B)

By convention the coupon rate is expressed as an effective annual rate.

C)

Bonds typically make two types of payments to their holders.

D)

The time remaining until the repayment date is known as the term of the bond.

2)

Which of the following formulas is incorrect?

A)

Yield to maturity for an n-period zero-coupon bond=

B)

Price of an *n*-period bond= + + …+

C)

Price of an *n*-period bond= Coupon× +

D)

Coupon=

3)

Which of the following statements is false?

A)

The IRR of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default free bond at its current price and hold it to maturity.

B)

The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond.

C)

Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields.

D)

When we calculate a bond’s yield to maturity by solving the formula, Price of an *n*-period bond= + + …+ , the yield we compute will be a rate per coupon interval.

4)

Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the bond is currently trading for $459, then the yield to maturity on this bond is closest to:

A)

7.5%

B)

10.4%

C)

9.7%

D)

8.1%

*Use the table for the question(s) below.*

5)

The yield to maturity for the two year zero-coupon bond is closest to:

A)

6.0%

B)

5.8%

C)

5.6%

D)

5.5%

6)

Based upon the information provided in the table above, you can conclude

A)

that the yield curve is flat.

B)

nothing about the shape of the yield curve.

C)

that the yield curve is downward sloping.

D)

that the yield curve is upward sloping.

*Use the table for the question(s) below.*

WS1)

Compute the yield to maturity for each of the five zero-coupon bonds.

WS2)

Plot the zero-coupon yield curve (for the first five years)