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CHAPTER 7 Interest Rates and Bond Valuation I. DEFINITIONS COUPON a 1. The stated interest payment, in dollars, made on a bond each period is called the bond’s: a. coupon. b. face value. c. maturity. d. yield to maturity. e. coupon rate. FACE VALUE b 2. The principal amount of a bond that is repaid at the end of the loan term is called the bond’s: a. coupon. b. face value. c. maturity. d. yield to maturity. e. coupon rate. MATURITY c 3. The specified date on which the principal amount of a bond is repaid is called the bond’s: a. coupon. b. face value. c. maturity. d. yield to maturity. e. coupon rate. YIELD TO MATURITY d 4. The rate of return required by investors in the market for owning a bond is called the: a. coupon. b. face value. c. maturity. d. yield to maturity. e. coupon rate. COUPON RATE e 5. The annual coupon of a bond divided by its face value is called the bond’s: a. coupon. b. face value. c. maturity. d. yield to maturity. e. coupon rate. PAR BONDS a 6. A bond with a face value of $1,000 that sells for $1,000 in the market is called a _____ bond. a. par value b. discount c. premium d. zero coupon e. floating rate DISCOUNT BONDS b 7. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a _____ bond. a. par b. discount c. premium d. zero coupon e. floating rate PREMIUM BONDS c 8. A bond with a face value of $1,000 that sells for more than $1,000 in the market is called a _____ bond. a. par b. discount c. premium d. zero coupon e. floating rate UNFUNDED DEBT d 9. The unfunded debt of a firm is generally understood to mean the firm’s: a. preferred stock. b. debts that mature in more than one year. c. debentures. d. debts that mature in less than one year. e. secured debt. INDENTURE a 10. The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the: a. indenture. b. covenant. c. terms of trade. d.