FIN 461 Exam 2 Questions with Verified
Correct Answers
bond prices and interest rate relationship
inversely related
invoice price
what the buyer actual pays (flat price and accrued interest)
flat price
present value of cash flows
ask price
price the dealer is asking for the asset
bid price
what the person is willing to pay for the asset
par value bond price
1000
what is the coupon rate
annual
current yield
expresses the annual coupon as a percentage of the bond's price
premium bond
price is more than par value
, par bond
price is par value
discount bond
price is less than par value
yield to maturity
rate that makes the present value of a bond's payments equal to its price (the average return
earned if held to maturity, with coupons reinvested at the YTM)
realized coupon yield
compound return actually earned assuming coupons are reinvested at prevailing rates (not
necessarily the original YTM)
Bond Equivalent Yield
allows for the restatement and comparison of securities with different compounding periods
(doubles the semi annual rate)
effective annual yield
The actual annual rate of return earned on an investment after accounting for compounding
during the year.
yield to call
return a bondholder receives if the bond is held to its call date (before maturity) rather than to
maturity
indexed bonds
Correct Answers
bond prices and interest rate relationship
inversely related
invoice price
what the buyer actual pays (flat price and accrued interest)
flat price
present value of cash flows
ask price
price the dealer is asking for the asset
bid price
what the person is willing to pay for the asset
par value bond price
1000
what is the coupon rate
annual
current yield
expresses the annual coupon as a percentage of the bond's price
premium bond
price is more than par value
, par bond
price is par value
discount bond
price is less than par value
yield to maturity
rate that makes the present value of a bond's payments equal to its price (the average return
earned if held to maturity, with coupons reinvested at the YTM)
realized coupon yield
compound return actually earned assuming coupons are reinvested at prevailing rates (not
necessarily the original YTM)
Bond Equivalent Yield
allows for the restatement and comparison of securities with different compounding periods
(doubles the semi annual rate)
effective annual yield
The actual annual rate of return earned on an investment after accounting for compounding
during the year.
yield to call
return a bondholder receives if the bond is held to its call date (before maturity) rather than to
maturity
indexed bonds
