Valuing Bonds

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Question 1
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When a bond matures,the issuer repays the bond's face value.

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Question 2
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When the market interest rate exceeds the coupon rate,bonds sell for less than face value.

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Question 3
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Current yield overstates the return of premium bonds since investors who buy a bond at a premium face a capital loss over the life of the bond.

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Question 4
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A bond's rate of return is equal to its coupon payment divided by the price paid for the bond.

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Question 5
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A bond's bid price will be lower than the ask price.

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Question 6
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A long-term investor would more likely be interested in a bond's current yield rather than its yield to maturity.

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Question 7
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Bonds that have a Standard & Poor's rating of BBB or better are considered to be investment-grade bonds.

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Question 8
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Speculative-grade bonds have default risk; investment grade bonds do not.

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Question 9
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TIPS are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

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Question 10
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The return to bondholders is guaranteed to equal the yield to maturity only if the bond is held until maturity.

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Question 11
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It would be realistic to read an ask price listed as 100.127 and a bid price of 100.143.

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Question 12
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Indexed bonds in the United States are known as Treasury Interest-Paid Securities,or TIPS.

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Question 13
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The current yield measures the bond's total rate of return.

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Question 14
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When a financial calculator or spreadsheet program finds a bond's yield to maturity,it uses a trial-and-error process.

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Question 15
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Even when the yield curve is upward-sloping,investors might rationally stay away from long-term bonds.

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Question 16
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Bonds with a rating of Ba or below by Moody's are referred to as speculative grade,high-yield,or junk bonds.

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Question 17
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Bonds rated BB or above by Standard & Poor's are called investment grade.

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Question 18
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Bonds rated Ba by Moody's have the same safety rating as the bonds rated BB by Standard & Poor's.

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Question 19
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Zero-coupon bonds are issued at prices below face value,and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

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Question 20
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Issuers compensate investors for default risk by putting a high face value on their bonds.

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