Multiple Questions Answers

1. Which of the following correctly describes the effect of a decline in interest rates on bond prices?
A. The prices of existing bonds rise.;
B. The prices of existing bonds are not affected.;
C. The prices of the existing bonds fall.;
D. The prices of newly issued bonds are lowered.
               
2. The major source of risk based by investors who purchase bonds is
A. purchasing power risk.;
B. liquidity risk.;
C. event risk.
D. interest rate risk.;
               
3. A $1000 par value bond that was issued two years ago by the Golden Ibis Corporation has a 6% coupon. If the prevailing market rate for interest on comparable bonds is now 7%, then the Golden Ibis bond pays it bondholders an annual interest income of
A. $70, and the bond would sell for less than its par value.;
B. $60, and the bond would sell for more than its par value.;
C. $70, and the bond would sell for more than its par value.
D. $60, and the bond would sell for less than its par value.;
               
4. A bond which has a deferred call
A. would not have to be redeemed when it reaches maturity.;
B. could be retired at any time prior to maturity.;
C. could not be retired for a specified period after the date of issue, but after that could be retired at any time.;
D. could be retired at any time during the initial call period, but after that period (usually the first five years after issue).