1. Callable bonds generally a
a. Grant the bondholder the option to call the bond anytime after the deferment period.
b. Are called when market interest rates increase.
c. Are called within the first three years after issuance.
d. Have a sinking fund provision.
2. The nominal rate of return on the bonds of Stu's Boats is 6.00 percent. The real rate of return is 3.2 percent. What is the rate of inflation?
3. A bond is callable in 4 years at 112% of par value. The bond is priced at $1,050 today and has a coupon of 7.5%, payable semi-annually. The bond matures in 15 years. What is its yield to call?
4. A zero coupon bond:
a. Is sold at a large premium.
b. Pays interest that is tax deductible to the issuer at the time of payment.
c. Can only be issued by the U.S. Treasury.
d. Has more interest rate risk than a comparable coupon bond.
e. Provides no taxable income to the bondholder until the bond matures.