FI 302 EXAM 2 (WHALEY) Questions and
Answers 2026-2027.
What is a Bond? - Answer - long term debt instruments
- provide periodic interest income - annuity series
- return of the principal amount at maturity
Components of a Bond - Answer Par Value, Coupon Rate, Coupon, Maturity Date, Yield to
Maturity
Par Value - Answer typically $1,000
Coupon Rate - Answer -Annual rate of interest paid
-Set by the company at the time of issue and is fixed
Coupon - Answer Regular interest payment received by holder per year
Maturity Date - Answer Expiration date of bond when par value is paid back
Yield to Maturity - Answer -Expected rate of return based on price of bond
-Dependent on market, economic, and company-specific factors and is therefor variable
Bond Pricing (4 steps) - Answer 1. Lay out the timing and amount of the cash flows promised
2. Determine the appropriate discount rate for the cash flows
3. Find the present value of the lump-sum principal and the annuity stream of coupons
4. Add the present value of the lump-sum principal and the present value of the coupons to get
the price or value of the bond
Most corporate and government bond pay coupons on a _________ - Answer semiannual
basis
Zero-Coupon Bonds - Answer -Known as "pure" discount bonds and sold at a discount from
face value
-Do not pay any investor over the life of the bond
A bond's coupon rate differs from its ________ - Answer Yield to Maturity (YTM)
, Premium Bond - Answer Coupon Rate > YTM
Price > par value
Par Value Bond - Answer Coupon Rate = YTM
Price = par value
Discount Bond - Answer Coupon Rate < YTM
Price < par value
Callable bonds - Answer A bond that can be redeemed by the issuer prior to its maturity. If
interest
rates have declined since the company first issued the bond, the company is likely to want to
refinance this debt at the lower rate of interest.
When interest rates go ______, bond prices _______ - Answer Rates go UP
Prices FALL
Bond Ratings - Answer -Ratings are produced by Moody's, Standard and Poor's, and Fitch
(gauge likelihood of default by issuer)
-Assisting issuing companies establish a yield on newly issued bonds
Junk Bonds - Answer -the label given to bonds that are rated below BBB
-considered to be speculative in nature and carry higher yields than those rated BBB or above
Fallen Angels - Answer the label given to bonds that have their ratings lowered from
investment to speculative grade
US Government Bonds - Answer -Includes bills, notes, and bonds sold by the Department of
the Treasury
Treasury Bills - Answer -zero-coupon, pure discount securities with maturities ranging from
1,3, and 6 months up to 1 year
Treasury Notes - Answer between 2-10 year maturities
Answers 2026-2027.
What is a Bond? - Answer - long term debt instruments
- provide periodic interest income - annuity series
- return of the principal amount at maturity
Components of a Bond - Answer Par Value, Coupon Rate, Coupon, Maturity Date, Yield to
Maturity
Par Value - Answer typically $1,000
Coupon Rate - Answer -Annual rate of interest paid
-Set by the company at the time of issue and is fixed
Coupon - Answer Regular interest payment received by holder per year
Maturity Date - Answer Expiration date of bond when par value is paid back
Yield to Maturity - Answer -Expected rate of return based on price of bond
-Dependent on market, economic, and company-specific factors and is therefor variable
Bond Pricing (4 steps) - Answer 1. Lay out the timing and amount of the cash flows promised
2. Determine the appropriate discount rate for the cash flows
3. Find the present value of the lump-sum principal and the annuity stream of coupons
4. Add the present value of the lump-sum principal and the present value of the coupons to get
the price or value of the bond
Most corporate and government bond pay coupons on a _________ - Answer semiannual
basis
Zero-Coupon Bonds - Answer -Known as "pure" discount bonds and sold at a discount from
face value
-Do not pay any investor over the life of the bond
A bond's coupon rate differs from its ________ - Answer Yield to Maturity (YTM)
, Premium Bond - Answer Coupon Rate > YTM
Price > par value
Par Value Bond - Answer Coupon Rate = YTM
Price = par value
Discount Bond - Answer Coupon Rate < YTM
Price < par value
Callable bonds - Answer A bond that can be redeemed by the issuer prior to its maturity. If
interest
rates have declined since the company first issued the bond, the company is likely to want to
refinance this debt at the lower rate of interest.
When interest rates go ______, bond prices _______ - Answer Rates go UP
Prices FALL
Bond Ratings - Answer -Ratings are produced by Moody's, Standard and Poor's, and Fitch
(gauge likelihood of default by issuer)
-Assisting issuing companies establish a yield on newly issued bonds
Junk Bonds - Answer -the label given to bonds that are rated below BBB
-considered to be speculative in nature and carry higher yields than those rated BBB or above
Fallen Angels - Answer the label given to bonds that have their ratings lowered from
investment to speculative grade
US Government Bonds - Answer -Includes bills, notes, and bonds sold by the Department of
the Treasury
Treasury Bills - Answer -zero-coupon, pure discount securities with maturities ranging from
1,3, and 6 months up to 1 year
Treasury Notes - Answer between 2-10 year maturities
