8.The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity.

A)current yield

B)dividend yield

C)P/E ratio

D)yield to maturity

E)discount yield

9.A coupon bond is a bond that _________.

A)pays interest on a regular basis (typically every six months)

B)does not pay interest on a regular basis but pays a lump sum at maturity

C)can always be converted into a specific number of shares of common stock in the issuing company

D)always sells at par

E)none of the above

10.A ___________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specified price after a specific date.

A)callable

B)coupon

C)put

D)Treasury

E)zero-coupon

11.Callable bonds

A)are called when interest rates decline appreciably.

B)have a call price that declines as time passes.

C)are called when interest rates increase appreciably.

D)a and b.

E)b and c.

12.A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in 5 years has a yield of 6.7%. A bond issued by General Motors due in 5 years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%. The default risk premiums on the bonds issued by Exxon and General Motors, respectively, are

A)1.0% and 1.2%

B)0.5% and .7%

C)1.2% and 1.0%

D)0.7% and 0.5%

E)none of the above

13. A coupon bond that pays interest annually is selling at par value of $1,000, matures in 5 years, and has a coupon rate of 9%.

A)6.00%

B)8.33%

C)9.00%

D)45.00%

E)none of the above

14.A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in 5 years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is __________ .

A)6.00%

B)8.33%

C)12.00%

D)60.00%

E)none of the above

15. You purchased an annual interest coupon bond one year ago that had 6 years remaining to maturity at that time. The coupon interest rate was 10% and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been _________.

A)7.00%

B)7.82%

C)8.00%

D)11.95%

E)none of the above

Essay Question 1. (15 points)