Introduction to Bonds

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Show your work for each problem.

1.
What do you receive regularly when you own a bond?
1. a)Shares of stock
2. b)Tax refunds
3. c)Interest (coupon) payments
4. d)Dividends
2.
A bond has a face value of 1000 dollars and a coupon rate of 5%. What is the annual interest payment?
3.
What is the face value of a bond?
1. a)The market price of the bond
2. b)The interest rate paid annually
3. c)The total interest earned
4. d)The amount returned at maturity
4.
A bond pays 80 dollars in interest each year for 5 years. What is the total interest earned?
5.
A bond has a face value of 2000 dollars and a 4% coupon rate. Calculate the annual interest payment.
6.
A 10-year bond has a face value of 5000 dollars and a coupon rate of 3%. What is the total interest earned over 10 years?
7.
Which bond pays MORE total interest? Bond A: 1000 dollars at 6% for 5 years. Bond B: 2000 dollars at 2% for 10 years.
1. a)They are equal
2. b)Bond B (400 dollars)
3. c)Cannot be determined
4. d)Bond A (300 dollars)
8.
You buy a 7-year bond with face value 3000 dollars at 5% interest. Calculate the total amount you will receive at the end (interest + face value).
9.
A bond pays 120 dollars per year in interest and has a face value of 4000 dollars. What is the coupon rate (as a percentage)?
10.
Your grandmother gives you a savings bond worth 500 dollars with a 6% coupon rate that matures in 8 years. How much will you have received in total at the end?
11.
Why are government bonds generally considered safer than corporate bonds?
1. a)They pay higher interest
2. b)They mature faster
3. c)Governments are less likely to default
4. d)They are easier to sell
12.
You have 10000 dollars to invest. Bond A offers 4% for 5 years. Bond B offers 3% for 8 years. How much MORE total interest does Bond B pay compared to Bond A?
13.
A company issues a 15-year bond with face value 25000 dollars at 4.5% interest. Calculate how much more than the face value you will have received in total at maturity.
14.
Bond X: 5000 dollars at 5% for 6 years. Bond Y: 8000 dollars at 4% for 5 years. Bond Z: 6000 dollars at 6% for 4 years. Which bond earns the MOST total interest?
1. a)They are all equal
2. b)Bond Y (1600 dollars)
3. c)Bond Z (1440 dollars)
4. d)Bond X (1500 dollars)
15.
You invest in two bonds: Bond A (2000 dollars at 5% for 4 years) and Bond B (3000 dollars at 4% for 5 years). What is your combined total return (face values + all interest)?