FIN 400 Exam Guide with Questions and
Answers
An investor only earns the YTM if four things happen: ANSWER 1.they hold the bond until
it matures;
2.there is no default;
3.all CF are invested at the fair rate;
4.and there is no change in the fair rate.
Since the fair rate depends on the general level of rates, the fourth condition is almost never
going to be satisfied.
Bond prices tend to move towards _________ as maturity approaches. ANSWER par
what is a bond? ANSWER A long-term debt instrument in which a borrower agrees to make
payments of principal and interest, on specific dates, to the holders of the bond.
A bond is a basic debt security.
A bond is a security that is issued in connection with a borrowing arrangement.
what does the coupon rate of the bond determine? ANSWER the coupon rate determines the
interest payment.
Answers
An investor only earns the YTM if four things happen: ANSWER 1.they hold the bond until
it matures;
2.there is no default;
3.all CF are invested at the fair rate;
4.and there is no change in the fair rate.
Since the fair rate depends on the general level of rates, the fourth condition is almost never
going to be satisfied.
Bond prices tend to move towards _________ as maturity approaches. ANSWER par
what is a bond? ANSWER A long-term debt instrument in which a borrower agrees to make
payments of principal and interest, on specific dates, to the holders of the bond.
A bond is a basic debt security.
A bond is a security that is issued in connection with a borrowing arrangement.
what does the coupon rate of the bond determine? ANSWER the coupon rate determines the
interest payment.
