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Bài test tiếng Anh ngành ngân hàng và đáp án phần 8

Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
1. A security's true value is the price that reflects investors' estimates of the value of the
cash flows they expect to receive in the future.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
2. In an efficient capital market, security prices fully reflect the knowledge and
expectations of all investors at a particular point in time.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy

3. If market prices reflect all relevant information about securities at a particular point in
time, it is called operational efficiency.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
4. If market prices reflect all relevant information about securities at a particular point in
time, it is called informational efficiency.
A) True
B) False
Ans: A

8-1


Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
5. If a market is strong-form market efficient, one would be able to beat the market with
inside information.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
6. Semistrong market efficiency implies that only public information that is available to
all investors is reflected in a security's market price.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
7. Public stock markets in developed countries like the United States have strong-form of
market efficiency.


A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
8. The largest investors in corporate bonds are banks and state government agencies.
A) True
B) False
Ans: B

8-2


Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
9. The largest investors in corporate bonds are life insurance companies and pension
funds.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
10. Most secondary market transactions for corporate bonds take place on the New York
Stock Exchange.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
11. Most secondary market transactions for corporate bonds take place through dealers in
the over-the-counter (OTC) market.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
12. A thin market for a security implies a high frequency of trades for that type of security
in the markets.
A) True
B) False
Ans: B

8-3


Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
13. Corporate bonds have a thin market relative to stocks.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
14. Prices in the corporate bond market tend to be more volatile than securities sold in
markets with greater trading volumes.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
15. Vanilla bonds have coupon payments that are fixed for the life of the bond, with the
principal being repaid at maturity.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
16. The face or par value for bonds is the amount paid to bondholders at maturity and is
usually equal to $1,000.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
17. Zero coupon bonds sell well above their par value because they offer no coupons.
A) True
B) False
Ans: B
8-4


Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
18. Convertible bonds can be converted into shares of common stock at some
predetermined ratio at the discretion of the bondholder.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
19. The value, or price, of any asset is the present value of its future cash flows.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 4
Level of Difficulty: Easy
20. The yield to maturity of a bond is the discount rate that makes the present value of the
coupon and principal payments equal to the price of the bond.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
21. Interest rate risk is the risk that bond prices will fluctuate as interest rate changes.
A) True
B) False
Ans: A

8-5


Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
22. As interest rates fall, the prices of bonds decline.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
23. Higher coupon bonds have greater interest rate risk.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
24. All other things being equal, a given change in the interest rates will have a greater
impact on the price of a low-coupon bond than a higher-coupon bond with the same
maturity.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
25. Bonds with a call provision sell at lower market yields than comparable noncallable
bonds.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 6
Level of Difficulty: Medium
26. The risk that the lender may not receive payments as promised is called default risk.
A) True
B) False
Ans: A
8-6


Parrino, 2e, Test Bank, Chapter 8

Format: True/False
Learning Objective: LO 6
Level of Difficulty: Medium
27. U.S. Treasury securities do not have any default risk and are the best proxy measure for
the risk-free rate.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 7
Level of Difficulty: Medium
28. Ascending or normal yield curves are upward-sloping yield curves that occur when an
economy is heading into recession.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 7
Level of Difficulty: Medium
29. If investors believe inflation will be increasing in the future, the prevailing yield will be
downward sloping.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
30. The real rate of interest varies with the business cycle, with the highest rates seen at the
end of a period of business expansion and the lowest at the bottom of a recession.
A) True
B) False
Ans: A

8-7


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
31. In an efficient capital market,
A) security prices fully reflect the knowledge and expectations of all investors at a particular
point in time.
B) investors and financial managers have no reason to believe the securities are not priced at
or near their true value.
C) prices of securities adjust as new information becomes available to the market.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
32. Which one of the following statements is NOT true?
A) The overall efficiency of a capital market depends on its operational efficiency and its
informational efficiency.
B) Operational efficiency focuses on bringing buyers and sellers together at the lowest
possible cost.
C) If market prices reflect all relevant information about securities at a particular point in
time, the market is operationally efficient.
D) All of the above are true.
Ans: C
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
33. Which one of the following statements is NOT true?
A) Competition among investors is an important driver of informational efficiency.
B) If market prices reflect all relevant information about securities at a particular point in
time, the market is informationally efficient.
C) In an informationally efficient market, market prices adjust quickly to new information
about a security as it becomes available.
D) All of the above are true.
Ans: D

8-8


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
34. With strong-form market efficiency,
A) the price of a security in the market reflects all public information only.
B) it would not be possible to earn abnormally high returns by trading on private
information.
C) investors who have access to inside or private information will be able to earn abnormal
returns.
D) None of the above.
Ans: B
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
35. With semistrong-form market efficiency,
A) the price of a security in the market reflects all public information only.
B) it would be possible to earn abnormally high returns by trading on public information.
C) investors who have access to inside or private information will be unable to earn
abnormal returns.
D) None of the above.
Ans: A
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
36. Which one of the following statements is NOT true?
A) Weak-form market efficiency implies that investors who have access to inside or private
information will be able to earn abnormal returns.
B) Semistrong-form market efficiency implies that investors who have access to inside or
private information will be able to earn abnormal returns.
C) Strong-form market efficiency implies that investors who have access to inside or private
information will be able to earn abnormal returns.
D) None of the above.
Ans: C

8-9


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
37. Which ONE of the following statements is true?
A) The largest investors in corporate bonds are life insurance companies and pension funds.
B) The market for corporate bonds is thin.
C) Prices in the corporate bond market also tend to be more volatile.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
38. Which one of the following statements is NOT true?
A) Prices in the corporate bond market also tend to be more volatile than the markets for
stocks or money market securities.
B) Corporate bonds are more marketable than the securities that have higher daily trading
volumes.
C) The market for corporate bonds is thin.
D) The largest investors in corporate bonds are life insurance companies and pension funds.
Ans: B
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
39. It is easy for individuals to trade in the corporate bond market because
A) the corporate bond market is considered to be very transparent.
B) prices in the corporate bond market tend to be more stable.
C) centralized reporting of deals between buyers and sellers take place.
D) None of the above statements are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
40. Which one of the following statements about vanilla bonds is NOT true?
A) They have no special provisions.
B) The face value, or par value, for most corporate bonds is $1,000.
C) Coupon payments are usually made quarterly.
D) The bond's coupon rate is calculated as the annual coupon payment divided by the bond's
face value.
Ans: C
8-10


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
41. Which ONE of the following statements is true?
A) Zero coupon bonds have no coupon payments over its life and only offer a single
payment at maturity.
B) Zero coupon bonds sell well below their face value (at a deep discount) because they
offer no coupons.
C) The most frequent and regular issuer of zero coupon securities is the U.S. Treasury
Department.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
42. Which ONE of the following statements is true?
A) To secure the conversion option on a bond, bondholders would be willing to pay a
premium.
B) The conversion ratio is set so that the firm's stock price must appreciate 15 to 20 percent
before it is profitable to convert bonds into equity.
C) Convertible bonds can be converted into shares of common stock at some predetermined
ratio at the discretion of the bondholder.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
43. Which one of the following statements about bond price is NOT true?
A) To compute a bond's price, one needs to calculate the present value of the bond's expected
cash flows.
B) The value, or price, of any asset is the future value of its cash flows.
C) The required rate of return, or discount rate, for a bond is the market interest rate called
the bond's yield to maturity
D) Estimate the expected future cash flows using the coupons that the bond will pay and the
maturity value to be received.
Ans: B

8-11


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
44. If a bond's coupon rate is equal to the market rate, then the bond will sell
A) at a price equal to its face value.
B) at a price greater than its face value.
C) at a price less than its face value.
D) None of the above are true.
Ans: A
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
45. Bonds sell at a discount off the par value when market rates for similar bonds are
A) less than the bond's coupon rate.
B) greater than the bond's coupon rate.
C) equal to the bond's coupon rate.
D) Market rates are irrelevant in determining a bond's price.
Ans: B
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
46. Bonds sell at a premium over the par value when market rates for similar bonds are
A) less than the bond's coupon rate.
B) greater than the bond's coupon rate.
C) equal to the bond's coupon rate.
D) Market rates are irrelevant in determining a bond's price.
Ans: A
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
47. In calculating the current price of a bond paying semiannual coupons, one needs to
A) use double the number of years for the number of payments.
B) use half the annual coupon.
C) use half the annual rate as the discount rate.
D) All of the above need to be done.
Ans: D

8-12


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
48. Which one of the following statements about zero coupon bonds is NOT true?
A) Zero coupon bonds have no coupon payments but promise a single payment at maturity.
B) Zero coupon bonds must sell for less than similar bonds that make periodic coupon
payments.
C) Zero coupon bonds make coupon payments but no principal payment at maturity.
D) All of the above statements are true.
Ans: C
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
49. Which one of the following statements is NOT true?
A) The yield to maturity of a bond is the discount rate that makes the present value of the
coupon and principal payments equal to the price of the bond.
B) It is the yield that the investor earns if the bond is held to maturity, and all the coupon and
principal payments are made as promised.
C) A bond's yield to maturity changes daily as interest rates increase or decrease.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
50. The yield to maturity of a bond is the discount rate that makes the present value of the
coupon and principal payments
A) exceed the price of the bond.
B) equal to zero.
C) equal to the price of the bond.
D) less than the price of the bond.
Ans: C

8-13


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
51. Which one of the following statements is NOT true?
A) The realized yield is the return earned on a bond given the cash flows actually received
by the investor.
B) The realized yield is equal to the yield to maturity even if the bond is sold prior to
maturity.
C) It is the interest rate at which the present value of the actual cash flows generated by the
investment equals the bond's price at the time of sale of the bond.
D) All of the above are true.
Ans: C
Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Easy
52. Which one of the following statements is NOT true?
A) Interest rate risk is the risk that bond prices will change as interest rates change.
B) Interest rate changes and bond prices are inversely related.
C) As interest rates increase, bond prices increase.
D) Long-term bonds are more price volatile than short-term bonds of similar risk.
Ans: C
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
53. Which ONE of the following statements is true?
A) Long-term bonds have lower price volatility than short-term bonds.
B) As interest rates decline, the prices of bonds rise; and as interest rates rise, the prices of
bonds decline.
C) All other things being equal, short-term bonds are more risky than long-term bonds.
D) Interest rate risk decreases as maturity increases.
Ans: B

8-14


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Easy
54. Marketability is the ability of an investor
A) to sell a security quickly, at a low transaction cost, and at a price close to its fair market
value.
B) to sell at a profit under all circumstances.
C) to sell the security above its par value.
D) None of the above.
Ans: A
Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Easy
55. Which ONE of the following statements is true?
A) The lower the transaction costs are, the greater a security's marketability.
B) The interest rate, or yield, on a security varies inversely with its degree of marketability.
C) U.S. Treasury bills have the largest and most active secondary market and are considered
to be the most marketable of all securities.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 6
Level of Difficulty: Medium
56. Which one of the following statements is NOT true?
A) The risk that the lender may not receive payments as promised is called default risk.
B) Investors must pay a premium to purchase a security that exposes them to default risk.
C) U.S. Treasury securities do not have any default risk and are the best proxy measure for
the risk-free rate.
D) All of the above are true statements.
Ans: B
Format: Multiple Choice
Learning Objective: LO 7
Level of Difficulty: Easy
57. Inverted yield curves are observed when
A) the economy is growing.
B) the economy is stagnant.
C) the economy is in recession.
D) None of the above.
Ans: C
8-15


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 7
Level of Difficulty: Medium
58. Which one of the following statements is NOT true?
A) The relationship between yield and marketability is known as the term structure of
interest rates.
B) The shape of the yield curve is not constant over time.
C) As the general level of interest rises and falls over time, the yield curve shifts up and
down and has different slopes.
D) Yield curves show graphically how market yields vary as term to maturity changes.
Ans: A
Format: Multiple Choice
Learning Objective: LO 7
Level of Difficulty: Easy
59. The three economic factors that determine the shape of the yield curve are
A) the real rate of interest, the expected rate of inflation, and marketability.
B) the real rate of interest, the expected rate of inflation, and interest rate risk.
C) the nominal rate of interest, the expected rate of inflation, and interest rate risk.
D) the real rate of interest, the nominal rate of interest, and interest rate risk.
Ans: B
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
60. Which ONE of the following statements is true?
A) The longer the maturity of a security, the greater its interest rate risk.
B) If investors believe inflation will be subsiding in the future, the prevailing yield will be
upward sloping.
C) The real rate of interest varies with the business cycle, with the lowest rates seen at the
end of a period of business expansion and the lowest at the bottom of a recession.
D) The interest risk premium always adds a downward bias to the slope of the yield curve.
Ans: A

8-16


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
61. Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The
interest rate for similar bonds is currently 9 percent. Assuming annual payments, what
is the present value of the bond? (Round to the nearest dollar.)
A) $872
B) $1,066
C) $990
D) $945
Ans: A
Feedback:
Years to maturity = n = 10
Coupon rate = C = 7%
Annual coupon = $1,000 x 0.07 = $70
Current market rate = i = 9%
Present value of bond = PB

8-17


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
62. Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent
coupon rate. Investors buying the bond today can expect to earn a yield to maturity of
6.875 percent. What should the company's bonds be priced at today? Assume annual
coupon payments. (Round to the nearest dollar.)
A) $972
B) $1,066
C) $1,014
D) $923
Ans: B
Feedback:
Years to maturity = n = 6
Coupon rate = C = 8.25%
Annual coupon = $1,000 x 0.0825 = $82.50
Current market rate = i = 6.875%

8-18


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
63. Bond price: Triumph Corp. issued five-year bonds that pay a coupon of 6.375
annually. The current market rate for similar bonds is 8.5 percent. How much will you
be willing to pay for Triumph's bond today? Round to the nearest dollar.
A) $1,023
B) $1,137
C) $916
D) $897
Ans: C
Feedback:
Years to maturity = n = 5
Coupon rate = C = 6.375%
Annual coupon = $1,000 x 0.06375 = $63.75
Current market rate = i = 8.5%
Cn
C1
C2
PB =
+
+ .......... +
2
(1 + i ) (1 + i )
(1 + i ) n
1 
1



1−
5 
1 − (1 + i ) n 

F
$1, 000
(1.085)
= C×
= $63.75 × 
+
+
n
5
i

 (1 + i)
 0.085  *(1.085)




= $251.22 + $665.05 = $916.26

8-19


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
64. Bond price: Your friend recommends that you invest in a three-year bond issued by
Trimer, Inc., that will pay annual coupons of 10 percent. Similar investments today will
yield 6 percent. How much should you pay for the bond? (Round to the nearest dollar.)
A) $1,024
B) $979
C) $886
D) $1,107
Ans: D
Feedback:
Years to maturity = n = 3
Coupon rate = C = 10%
Annual coupon = $1,000 x 0.10 = $100
Current market rate = i = 6%
C
C2
Cn
PB = 1 +
+ .......... +
2
(1 + i ) (1 + i )
(1 + i ) n

1 
1 


1−
1 − (1 + i ) n 

F
(1.06)3  $1, 000
=C×
= $100 × 
+
+
n
3
i

 (1 + i)
 0.06  *(1.06)




= $267.30 + $839.62 = $1,106.92

8-20


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
65. Bond price: Kevin Rogers is interested in buying a five-year bond that pays a coupon
of 10 percent on a semiannual basis. The current market rate for similar bonds is 8.8
percent. What should be the current price of this bond? (Round to the nearest dollar.)
A) $1,048
B) $965
C) $1,099
D) $982
Ans: A
Feedback:
Years to maturity = n = 5
Coupon rate = C = 10%
Frequency of payment = m = 2
Semiannual coupon = $1,000 x (0.10/2) = $50.00
Current market rate = i = 8.8%
Present value of bond = PB

8-21


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
66. Bond price: Giant Electronics is issuing 20-year bonds that will pay coupons
semiannually. The coupon rate on this bond is 7.8 percent. If the market rate for such
bonds is 7 percent, what will the bonds sell for today? (Round to the nearest dollar.)
A) $1,037
B) $1,085
C) $861
D) $923
Ans: B
Feedback:
Years to maturity = n = 20
Coupon rate = C = 7.8%
Frequency of payment = m = 2
Semiannual coupon = $1,000 x (0.078/2) = $39.00
Current market rate = i = 7%
Present value of bond = PB

8-22


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
67. Bond price: Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at
a price of 943.22. The bond has a coupon rate of 9 percent and pays the coupon
semiannually. Similar bonds in the market will yield 10 percent today. Should she buy
the bonds at the offered price? (Round to the nearest dollar.)
A) Yes, the bond is worth more at $1,015.
B) No, the bond is only worth $921.
C) Yes, the bond is worth more at $951.
D) No, the bond is only worth $912.
Ans: C
Feedback:
Years to maturity = n = 7
Coupon rate = C = 9%
Frequency of payment = m = 2
Semiannual coupon = $1,000 x (0.09/2) = $45.00
Current market rate = i = 10%
Present value of bond = PB

8-23


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
68. Bond price: Kevin Oh is planning to sell a bond that he owns. This bond has four years
to maturity and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the
current market will yield 12 percent. What will be the price that he will get for his
bond? (Round to the nearest dollar.)
A) $1,044
B) $938
C) $970
D) $1,102
Ans: B
Feedback:
Years to maturity = n = 4
Coupon rate = C = 10%
Frequency of payment = m = 2
Semiannual coupon = $1,000 x (0.10/2) = $50.00
Current market rate = i = 12%
Present value of bond = PB

8-24


Parrino, 2e, Test Bank, Chapter 8

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Hard
69. Bond price: Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent
coupon. The current market rate for similar bonds is 9 percent. Assume semiannual
coupon payments. What is the maximum price that should be paid for this bond?
(Round to the nearest dollar.)
A) $951
B) $882
C) $1,033
D) $1,195
Ans: D
Feedback:
Years to maturity = n = 10
Coupon rate = C = 12%
Frequency of payment = m = 2
Semiannual coupon = $1,000 x (0.12/2) = $60.00
Current market rate = i = 9%
Present value of bond = PB

8-25


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