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Chapter 07: Bonds and Their Valuation
1. If a firm raises capital by selling new bonds, it could be called the "issuing firm," and the coupon rate is generally set
equal to the required rate on bonds of equal risk.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 7-2 Key Characteristics of Bonds
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.17.07.02 - Key Characteristics of Bonds
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
LOCAL STANDARDS: United States - OH - Default City - Tier 2: - Capital structure
TOPICS: Coupon rate
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 8/10/2018 9:06 AM
DATE MODIFIED: 8/10/2018 9:06 AM
2. A call provision gives bondholders the right to demand, or "call for," repayment of a bond. Typically, companies call
bonds if interest rates rise and do not call them if interest rates decline.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
TOPICS: Call provision
KEYWORDS: Bloom's: Comprehension
3. Sinking funds are provisions included in bond indentures that require companies to retire bonds on a scheduled basis
prior to their final maturity. Many indentures allow the company to acquire bonds for sinking fund purposes by either (1)
purchasing bonds on the open market at the going market price or (2) selecting the bonds to be called by a lottery
administered by the trustee, in which case the price paid is the bond's face value.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
POINTS: 1
DIFFICULTY: EASY
TOPICS: Sinking funds
4. A zero coupon bond is a bond that pays no interest and is offered (and initially sells) at par. These bonds provide
compensation to investors in the form of capital appreciation.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
TOPICS: Zero coupon bond
5. The desire for floating-rate bonds, and consequently their increased usage, arose out of the experience of the early
1980s, when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of
outstanding bonds.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY


TOPICS: Floating-rate debt
6. The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a
profit, may be estimated by determining future cash flows and then discounting them back to the present.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 7-3 Bond Valuation
LEARNING OBJECTIVES: FOFM.BRIG.17.07.03 - Bond Valuation
TOPICS: Discounted cash flows
7. The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining
maturity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 7-5 Changes in Bond Values over Time
LEARNING OBJECTIVES: FOFM.BRIG.17.07.05 - Changes in Bond Values Over Time
TOPICS: Bond prices and int. rates

8. A bond that had a 20-year original maturity with 1 year left to maturity has more price risk than a 10-year original
maturity bond with 1 year left to maturity. (Assume that the bonds have equal default risk and equal coupon rates, and
they cannot be called.)
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 7-7 Assessing a Bond's Riskiness
LEARNING OBJECTIVES: FOFM.BRIG.17.07.07 - Assessing a Bond's Riskiness
TOPICS: Price risk
9. Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, generally
be subject to much more price risk if you purchased a 30-day bond than if you bought a 30-year bond.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
TOPICS: Price risk
10. As a general rule, a company's debentures have higher required interest rates than its mortgage bonds because
mortgage bonds are backed by specific assets while debentures are unsecured.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 7-8 Default Risk
LEARNING OBJECTIVES: FOFM.BRIG.17.07.08 - Default Risk
TOPICS: Bonds and debentures
11. Junk bonds are high-risk, high-yield debt instruments. They are often used to finance leveraged buyouts and mergers,
and to provide financing to companies of questionable financial strength.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
TOPICS: Junk bond
12. There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required
return is lowest for AAA-rated bonds, and required returns increase as the ratings get lower.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY

TOPICS: Bond ratings and req. returns
13. Income bonds pay interest only if the issuing company actually earns the indicated interest. Thus, these securities
cannot bankrupt a company, and this makes them safer from an investor's perspective than regular bonds.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: MODERATE
TOPICS: Income bond
14. You are considering 2 bonds that will be issued tomorrow. Both are rated triple B (BBB, the lowest investment-grade
rating), both mature in 20 years, both have a 10% coupon, neither can be called except for sinking fund purposes, and both
are offered to you at their $1,000 par values. However, Bond SF has a sinking fund while Bond NSF does not. Under the
sinking fund, the company must call and pay off 5% of the bonds at par each year. The yield curve at the time is upward
sloping. The bond's prices, being equal, are probably not in equilibrium, as Bond SF, which has the sinking fund, would
generally be expected to have a higher yield than Bond NSF.
a. True
b. False
ANSWER: False
RATIONALE: The sinking fund would give Bond SF a lower average maturity, and it would also lower its
risk. Therefore, Bond SF should have a lower, not a higher, yield.
POINTS: 1

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.03 - BUSPROG: Analytic
TOPICS: Sinking fund
KEYWORDS: Bloom's: Application
15. Floating-rate debt is advantageous to investors because the interest rate moves up if market rates rise. Since floating-
rate debt shifts price risk to companies, it offers no advantages to corporate issuers.
a. True
b. False
ANSWER: False
RATIONALE: Floating rates can benefit issuers if rates decline, so a company that thinks rates are likely to
fall would want to issue such bonds.
POINTS: 1
TOPICS: Floating-rate debt
16. A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and
is not expected to default. The bond should sell at a premium if market interest rates are below 10% and at a discount if
interest rates are greater than 10%.
a. True
b. False
ANSWER: True
POINTS: 1


TOPICS: Bond premiums and discounts
17. You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper
that you can buy a $1,000 par value bond for $800. The coupon rate is 10% (with annual payments), and there are 10
years before the bond will mature and pay off its $1,000 par value. You should buy the bond if your required return on
bonds with this risk is 12%.
a. True
b. False
ANSWER: True
RATIONALE: The bonds expected return (YTM) is 13.81%, which exceeds the 12% required return, so buy
the bond.
POINTS: 1
TOPICS: Bond value - annual payment
KEYWORDS: Bloom's: Evaluation
18. If the required rate of return on a bond (rd) is greater than its coupon interest rate and will remain above that rate, then
the market value of the bond will always be below its par value until the bond matures, at which time its market value will
equal its par value. (Accrued interest between interest payment dates should not be considered when answering this
question.)
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: Bond prices and returns

19. The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds,
other things held constant.
a. True
b. False
ANSWER: True
RATIONALE: The reason for this is that more of the cash flows of a low-coupon bond comes late in the
bond's life (as the maturity payment), and later cash flows are impacted most heavily by
changing market rates.
POINTS: 1
TOPICS: Prices and interest rates
20. Restrictive covenants are designed primarily to protect bondholders by constraining the actions of managers. Such
covenants are spelled out in bond indentures.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: Restrictive covenants

21. Other things equal, a firm will have to pay a higher coupon rate on its subordinated debentures than on its second
mortgage bonds.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: Bonds and debentures
22. A bond that is callable has a chance of being retired earlier than its stated term to maturity. Therefore, if the yield
curve is upward sloping, an outstanding callable bond should have a lower yield to maturity than an otherwise identical
noncallable bond.
a. True
b. False
ANSWER: False
RATIONALE: The callable bond will be called if rates fall far enough below the coupon rate, but it will not
be called otherwise. Thus, the call provision can only harm bondholders. Therefore, callable
bonds sell at higher yields than noncallable bonds, regardless of the slope of the yield curve.
POINTS: 1
DIFFICULTY: CHALLENGING
REFERENCES: 7-4 Bond Yields
LEARNING OBJECTIVES: FOFM.BRIG.17.07.04 - Bond Yields
TOPICS: Callable bonds
23. Which of the following statements is CORRECT?

a. You hold two bonds, a 10-year, zero coupon, issue and a 10-year bond that pays a 6% annual coupon. The
same market rate, 6%, applies to both bonds. If the market rate rises from its current level, the zero coupon
bond will experience the larger percentage decline.
b. The time to maturity does not affect the change in the value of a bond in response to a given change in interest
rates.
c. You hold two bonds. One is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6%
annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current
level, the zero coupon bond will experience the smaller percentage decline.
d. The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in
interest rates, other things held constant.
e. The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in
interest rates.
ANSWER: a
POINTS: 1
DIFFICULTY: EASY
QUESTION TYPE: Multiple Choice
TOPICS: Interest rates
KEYWORDS: Bloom's: Analysis
OTHER: Multiple Choice: Conceptual
24. Which of the following events would make it more likely that a company would call its outstanding callable bonds?
a. The company’s bonds are downgraded.
b. Market interest rates rise sharply.
c. Market interest rates decline sharply.
d. The company's financial situation deteriorates significantly.
e. Inflation increases significantly.
ANSWER: c
POINTS: 1
DIFFICULTY: EASY

25. Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable,
are as follows:
T-bond = 7.72% A = 9.64%

AAA = 8.72% BBB = 10.18%
The differences in rates among these issues were most probably caused primarily by:
a. Real risk-free rate differences.
b. Tax effects.
c. Default risk and liquidity differences.
d. Maturity risk differences.
e. Inflation differences.
ANSWER: c
POINTS: 1
DIFFICULTY: EASY
TOPICS: Bond ratings
26. Under normal conditions, which of the following would be most likely to increase the coupon rate required for a bond
to be issued at par?
a. Adding additional restrictive covenants that limit management's actions.
b. Adding a call provision.
c. The rating agencies change the bond's rating from Baa to Aaa.
d. Making the bond a first mortgage bond rather than a debenture.
e. Adding a sinking fund.
ANSWER: b
POINTS: 1

TOPICS: Bond coupon rate

a. Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if
interest rates decline after the bond was issued.
b. Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be
available to pay off bondholders when the bonds mature.
c. A sinking fund provision makes a bond more risky to investors at the time of issuance.
d. Sinking fund provisions never require companies to retire their debt; they only establish “targets” for the
company to reduce its debt over time.
e. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely
to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the
sinking fund call price.
ANSWER: a
POINTS: 1
TOPICS: Sinking funds
28. Amram Inc. can issue a 20-year bond with a 6% annual coupon at par. This bond is not convertible, not callable, and
has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be
called, and has a sinking fund. Which of the following most accurately describes the coupon rate that Amram would have
to pay on the second bond, the convertible, callable bond with the sinking fund, to have it sell initially at par?
a. The coupon rate should be exactly equal to 6%.
b. The coupon rate could be less than, equal to, or greater than 6%, depending on the specific terms set, but in the
real world the convertible feature would probably cause the coupon rate to be less than 6%.
c. The rate should be slightly greater than 6%.

d. The rate should be over 7%.

e. The rate should be over 8%.
ANSWER: b
RATIONALE: The second bond's convertible feature and sinking fund would tend to lower its required rate
of return, but the call feature would raise its rate. Given these opposing forces, the second
bond's required coupon rate could be above or below that of the first bond. However, the
convertible feature generally dominates in the real world, so convertibles' coupon rates are
generally less than comparable non-convertible issues' rates.
POINTS: 1
TOPICS: Convertible, callable bonds
KEYWORDS: Bloom's: Evaluation
29. Tucker Corporation is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but
this may be changed. If the bonds are made callable after 5 years at a 5% call premium, how would this affect their
required rate of return?
a. Because of the call premium, the required rate of return would decline.
b. There is no reason to expect a change in the required rate of return.
c. The required rate of return would decline because the bond would then be less risky to a bondholder.
d. The required rate of return would increase because the bond would then be more risky to a bondholder.
e. It is impossible to say without more information.
ANSWER: d
POINTS: 1
TOPICS: Bond yields


30. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the
following statements is CORRECT?
a. The bond’s expected capital gains yield is zero.
b. The bond’s yield to maturity is above 9%.
c. The bond’s current yield is above 9%.
d. If the bond’s yield to maturity declines, the bond will sell at a discount.
e. The bond’s current yield is less than its expected capital gains yield.
ANSWER: a
POINTS: 1
TOPICS: Bond yields

a. A zero coupon bond's current yield is equal to its yield to maturity.
b. If a bond’s yield to maturity exceeds its coupon rate, the bond will sell at par.
c. All else equal, if a bond’s yield to maturity increases, its price will fall.
d. If a bond’s yield to maturity exceeds its coupon rate, the bond will sell at a premium over par.
e. All else equal, if a bond’s yield to maturity increases, its current yield will fall.
ANSWER: c
POINTS: 1
TOPICS: Bond yields

32. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?
a. The bond’s coupon rate exceeds its current yield.
b. The bond’s current yield exceeds its yield to maturity.
c. The bond’s yield to maturity is greater than its coupon rate.
d. The bond’s current yield is equal to its coupon rate.
e. If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850.
ANSWER: c
POINTS: 1
TOPICS: Bond yields

a. If a bond is selling at a discount, the yield to call is a better measure of return than is the yield to maturity.
b. On an expected yield basis, the expected capital gains yield will always be positive because an investor would
not purchase a bond with an expected capital loss.
c. On an expected yield basis, the expected current yield will always be positive because an investor would not
purchase a bond that is not expected to pay any cash coupon interest.
d. If a coupon bond is selling at par, its current yield equals its yield to maturity, and its expected capital gains
yield is zero.
e. The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield
to maturity than Bond B.
ANSWER: d
POINTS: 1


TOPICS: Bond yields
34. Three $1,000 face value, 10-year, noncallable, bonds have the same amount of risk, hence their YTMs are equal. Bond
8 has an 8% annual coupon, Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon. Bond 10 sells at
par. Assuming that interest rates remain constant for the next 10 years, which of the following statements is CORRECT?
a. Bond 8’s current yield will increase each year.
b. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not
expected to change, their prices should all remain at their current levels until maturity.
c. Bond 12 sells at a premium (its price is greater than par), and its price is expected to increase over the next
year.
d. Bond 8 sells at a discount (its price is less than par), and its price is expected to increase over the next year.
e. Over the next year, Bond 8’s price is expected to decrease, Bond 10’s price is expected to stay the same, and
Bond 12’s price is expected to increase.
ANSWER: d
RATIONALE: Note that Bond 10 sells at par, so the required return on all these bonds is 10%. Bond 10's
price will remain constant; Bond 8 will sell initially at a discount and will rise, and Bond 12
will sell initially at a premium and will decline. Note too that since it has larger cash flows
from its higher coupons, Bond 12 would be less sensitive to interest rate changes (i.e., it has
less price risk. It has more default risk).
POINTS: 1
TOPICS: Bond values over time
35. A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following
statements is CORRECT?
a. The bond’s current yield is less than 8%.
b. If the yield to maturity remains at 8%, then the bond’s price will decline over the next year.
c. The bond’s coupon rate is less than 8%.
d. If the yield to maturity increases, then the bond’s price will increase.
e. If the yield to maturity remains at 8%, then the bond’s price will remain constant over the next year.
ANSWER: b
RATIONALE: Answers c, d, and e are clearly wrong, and answer b is clearly correct. Answer a is also
wrong, but this is not obvious to most people. We can demonstrate that a is incorrect by using
the following example.
Par $1,000
YTM 8.00%
Maturity 10 years
Price $1,100
Payment $94.90
Coupon rate 9.49%
Current yield 8.63%
The current yield is greater than 8%.
POINTS: 1
TOPICS: Int. rates and bond prices
36. A 12-year bond has an annual coupon of 9%. The coupon rate will remain fixed until the bond matures. The bond has
a yield to maturity of 7%. Which of the following statements is CORRECT?
a. If market interest rates decline, the price of the bond will also decline.
b. The bond is currently selling at a price below its par value.
c. If market interest rates remain unchanged, the bond’s price one year from now will be lower than it is today.
d. The bond should currently be selling at its par value.
e. If market interest rates remain unchanged, the bond’s price one year from now will be higher than it is today.
ANSWER: c
POINTS: 1

37. A 10-year Treasury bond has an 8% coupon, and an 8-year Treasury bond has a 10% coupon. Neither is callable, and
both have the same yield to maturity. If the yield to maturity of both bonds increases by the same amount, which of the
following statements would be CORRECT?
a. The prices of both bonds will decrease by the same amount.
b. Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price.
c. The prices of both bonds would increase by the same amount.
d. One bond's price would increase, while the other bond’s price would decrease.
e. The prices of the two bonds would remain constant.
ANSWER: b
RATIONALE: We can tell by inspection that c, d, and e are all incorrect. a is also incorrect because the 10-
year bond will fall more due to its longer maturity and lower coupon. That leaves Answer b
as the only possibly correct statement. Recognize that longer-term bonds, and ones where
payments come late (like low coupon bonds) are most sensitive to changes in interest rates.
Thus, the 10-year, 8% coupon bond should be more sensitive to a decline in rates. You could
also do some calculations to confirm that b is correct.
POINTS: 1
38. You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds
have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is
CORRECT?
a. The price of Bond B will decrease over time, but the price of Bond A will increase over time.
b. The prices of both bonds will remain unchanged.
c. The price of Bond A will decrease over time, but the price of Bond B will increase over time.
d. The prices of both bonds will increase by 7% per year.
e. The prices of both bonds will increase over time, but the price of Bond A will increase at a faster rate.
ANSWER: c

POINTS: 1
TOPICS: Bond yields and prices
39. Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy
fall by 1%?
a. 10-year, zero coupon bond.
b. 20-year, 10% coupon bond.
c. 20-year, 5% coupon bond.
d. 1-year, 10% coupon bond.
e. 20-year, zero coupon bond.
ANSWER: e
POINTS: 1
TOPICS: Price risk
40. Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the
largest percentage increase in price?
a. An 8-year bond with a 9% coupon.
b. A 1-year bond with a 15% coupon.
c. A 3-year bond with a 10% coupon.
d. A 10-year zero coupon bond.
e. A 10-year bond with a 10% coupon.

ANSWER: d
POINTS: 1
TOPICS: Price risk
41. Which of the following bonds has the greatest price risk?
a. A 10-year $100 annuity.
b. A 10-year, $1,000 face value, zero coupon bond.
c. A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.
d. All 10-year bonds have the same price risk since they have the same maturity.
e. A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.
ANSWER: b
POINTS: 1
TOPICS: Price risk
42. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in
value?
a. A 1-year zero coupon bond.
b. A 1-year bond with an 8% coupon.
c. A 10-year bond with an 8% coupon.
d. A 10-year bond with a 12% coupon.

e. A 10-year zero coupon bond.
ANSWER: e
POINTS: 1
TOPICS: Price risk

a. All else equal, high-coupon bonds have less reinvestment risk than low-coupon bonds.
b. All else equal, long-term bonds have less price risk than short-term bonds.
c. All else equal, low-coupon bonds have less price risk than high-coupon bonds.
d. All else equal, short-term bonds have less reinvestment risk than long-term bonds.
e. All else equal, long-term bonds have less reinvestment risk than short-term bonds.
ANSWER: e
POINTS: 1
TOPICS: Price and reinvest. risk

a. One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it
until it matures or is sold.
b. Long-term bonds have less price risk but more reinvestment risk than short-term bonds.
c. If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less
price risk.
d. Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more price risk but less
reinvestment risk.
e. Long-term bonds have less price risk and also less reinvestment risk than short-term bonds.
ANSWER: d
POINTS: 1

a. All else equal, secured debt is more risky than unsecured debt.
b. The expected return on a corporate bond must be greater than its promised return if the probability of default is
greater than zero.
c. All else equal, senior debt has more default risk than subordinated debt.
d. A company’s bond rating is affected by its financial ratios but not by provisions in its indenture.
e. Under Chapter 7 of the Bankruptcy Act, the assets of a firm that declares bankruptcy must be liquidated, and
the sale proceeds must be used to pay off claims against it according to the priority of the claims as spelled out
in the Act.
ANSWER: e
POINTS: 1
TOPICS: Default and bankruptcy


a. If the maturity risk premium were zero and interest rates were expected to decrease in the future, then the yield
curve for U.S. Treasury securities would, other things held constant, have an upward slope.
b. Liquidity premiums are generally higher on Treasury than corporate bonds.
c. The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact
that the probability of default is higher on long-term bonds than on short-term bonds.
d. Default risk premiums are generally lower on corporate than on Treasury bonds.
e. Reinvestment risk is lower, other things held constant, on long-term than on short-term bonds.
ANSWER: e
POINTS: 1
REFERENCES: Comprehensive
LEARNING OBJECTIVES: FOFM.BRIG.17.07.00 - Comprehensive
United States - OH - DISC.FOFM.BRIG.17.02 - Financial markets and interest rates
TOPICS: Term structure

a. All else equal, senior debt generally has a lower yield to maturity than subordinated debt.
b. An indenture is a bond that is less risky than a mortgage bond.
c. The expected return on a corporate bond will generally exceed the bond's yield to maturity.
d. If a bond’s coupon rate exceeds its yield to maturity, then its expected return to investors will also exceed its
yield to maturity.
e. Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then
be liquidated.
ANSWER: a
POINTS: 1
TOPICS: Bonds and default risk


a. If a coupon bond is selling at par, its current yield equals its yield to maturity.
b. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at
maturity.
c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price
of a 10-year zero coupon bond.
d. If a bond’s yield to maturity exceeds its annual coupon, then the bond will trade at a premium.
e. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.
ANSWER: a
POINTS: 1
TOPICS: Bond concepts
49. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is
CORRECT?
a. If the yield to maturity remains constant, the bond’s price one year from now will be higher than its current
price.
b. The bond is selling below its par value.
c. The bond is selling at a discount.
d. If the yield to maturity remains constant, the bond’s price one year from now will be lower than its current
price.
e. The bond’s current yield is greater than 9%.
ANSWER: d
POINTS: 1

50. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is
CORRECT?
a. The bond sells at a price below par.
b. The bond has a current yield greater than 8%.
c. The bond sells at a discount.
d. The bond’s required rate of return is less than 7.5%.
e. If the yield to maturity remains constant, the price of the bond will decline over time.
ANSWER: e
POINTS: 1
51. An investor is considering buying one of two 10-year, $1,000 face value, noncallable bonds: Bond A has a 7% annual
coupon, while Bond B has a 9% annual coupon. Both bonds have a yield to maturity of 8%, and the YTM is expected to
remain constant for the next 10 years. Which of the following statements is CORRECT?
a. Bond B has a higher price than Bond A today, but one year from now the bonds will have the same price.
b. One year from now, Bond A’s price will be higher than it is today.
c. Bond A’s current yield is greater than 8%.
d. Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price.
e. Both bonds have the same price today, and the price of each bond is expected to remain constant until the
bonds mature.
ANSWER: b
POINTS: 1


a. If a bond is selling at a discount to par, its current yield will be greater than its yield to maturity.
b. All else equal, bonds with longer maturities have less price risk than bonds with shorter maturities.
c. If a bond is selling at its par value, its current yield equals its capital gains yield.
d. If a bond is selling at a premium, its current yield will be less than its capital gains yield.
e. All else equal, bonds with larger coupons have less price risk than bonds with smaller coupons.
ANSWER: e
POINTS: 1

a. If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity,
and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its
$1,000 par value.
b. If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then dropped to the point
where rd = YTM = 5%, we could be sure that the bond would sell at a premium above its $1,000 par value.
c. Other things held constant, including the coupon rate, a corporation would rather issue noncallable bonds than
callable bonds.
d. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond
because it would have a shorter expected life.

e. Bonds are exposed to both reinvestment risk and price risk. Longer-term low-coupon bonds, relative to
shorter-term high-coupon bonds, are generally more exposed to reinvestment risk than price risk.
ANSWER: b
POINTS: 1

a. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably
observe an immediate increase in bond prices.
b. The total yield on a bond is derived from dividends plus changes in the price of the bond.
c. Bonds are generally regarded as being riskier than common stocks, and therefore bonds have higher required
returns.
d. Bonds issued by larger companies always have lower yields to maturity (due to less risk) than bonds issued by
smaller companies.
e. The market price of a bond will always approach its par value as its maturity date approaches, provided the
bond’s required return remains constant.
ANSWER: e
POINTS: 1

a. If a coupon bond is selling at par, its current yield equals its yield to maturity.
b. If rates fall after its issue, a zero coupon bond could trade at a price above its maturity (or par) value.
c. If rates fall rapidly, a zero coupon bond’s expected appreciation could become negative.
d. If a firm moves from a position of strength toward financial distress, its bonds’ yield to maturity would
probably decline.
e. If a bond is selling at a premium, this implies that its yield to maturity exceeds its coupon rate.
ANSWER: a
POINTS: 1
56. Bond X has an 8% annual coupon, Bond Y has a 10% annual coupon, and Bond Z has a 12% annual coupon. Each of
the bonds is noncallable, has a maturity of 10 years, and has a yield to maturity of 10%. Which of the following
statements is CORRECT?
a. If the bonds' market interest rate remains at 10%, Bond Z’s price will be lower one year from now than it is
today.
b. Bond X has the greatest reinvestment risk.
c. If market interest rates decline, the prices of all three bonds will increase, but Z's price will have the largest
percentage increase.
d. If market interest rates remain at 10%, Bond Z’s price will be 10% higher one year from today.
e. If market interest rates increase, Bond X’s price will increase, Bond Z’s price will decline, and Bond Y’s price
will remain the same.
ANSWER: a
POINTS: 1

57. Bonds A, B, and C all have a maturity of 10 years and a yield to maturity of 7%. Bond A’s price exceeds its par value,
Bond B’s price equals its par value, and Bond C’s price is less than its par value. None of the bonds can be called. Which
of the following statements is CORRECT?
a. If the yield to maturity on each bond decreases to 6%, Bond A will have the largest percentage increase in its
price.
b. Bond A has the most price risk.
c. If the yield to maturity on the three bonds remains constant, the prices of the three bonds will remain the same
over the next year.
d. If the yield to maturity on each bond increases to 8%, the prices of all three bonds will decline.
e. Bond C sells at a premium over its par value.
ANSWER: d
RATIONALE: A is a high coupon bond because it sells above par, C is a low coupon bond, and B yields the
going market rate. Consider this when ruling out a, b, c, and e. d is obviously correct.
POINTS: 1

a. 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10% coupon bonds.
b. A 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5% coupon bond (assuming all else
equal).
c. The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received
during the year and the change in the value of the bond from the beginning to the end of the year, divided by
the bond's price at the beginning of the year.
d. The price of a 20-year, 10% bond is less sensitive to changes in interest rates than the price of a 5-year, 10%
bond.
e. A $1,000 bond with $100 annual interest payments that has 5 years to maturity and is not expected to default
would sell at a discount if interest rates were below 9% and at a premium if interest rates were greater than
11%.
ANSWER: c
POINTS: 1

a. The yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains
yield; it has a zero current interest yield.
b. The market value of a bond will always approach its par value as its maturity date approaches. This holds true
even if the firm has filed for bankruptcy.
c. Rising inflation makes the actual yield to maturity on a bond greater than a quoted yield to maturity that is
based on market prices.
d. The yield to maturity on a coupon bond that sells at its par value consists entirely of a current interest yield; it
has a zero expected capital gains yield.
e. The expected capital gains yield on a bond will always be zero or positive because no investor would purchase
a bond with an expected capital loss.
ANSWER: d
POINTS: 1
TOPICS: Bond yields

a. If a coupon bond is selling at a premium, then the bond's current yield is zero.
b. If a coupon bond is selling at a discount, then the bond's expected capital gains yield is negative.
c. If a bond is selling at a discount, the yield to call is a better measure of the expected return than the yield to
maturity.
d. The current yield on Bond A exceeds the current yield on Bond B. Therefore, Bond A must have a higher
yield to maturity than Bond B.
e. If a coupon bond is selling at par, its current yield equals its yield to maturity.
ANSWER: e
POINTS: 1
TOPICS: Bond yields

a. If two bonds have the same maturity, the same yield to maturity, and the same level of risk, the bonds should
sell for the same price regardless of their coupon rates.
b. All else equal, an increase in interest rates will have a greater effect on the prices of short-term than long-term
bonds.
c. All else equal, an increase in interest rates will have a greater effect on higher-coupon bonds than it will have
on lower-coupon bonds.
d. If a bond’s yield to maturity exceeds its coupon rate, the bond’s price must be less than its maturity value.
e. If a bond’s yield to maturity exceeds its coupon rate, the bond’s current yield must be less than its coupon rate.
ANSWER: d
POINTS: 1
TOPICS: Bond yields and prices

62. Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face
value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT?
a. Bond A’s capital gains yield is greater than Bond B’s capital gains yield.
b. Bond A trades at a discount, whereas Bond B trades at a premium.
c. If the yield to maturity for both bonds remains at 8%, Bond A’s price one year from now will be higher than it
is today, but Bond B’s price one year from now will be lower than it is today.
d. If the yield to maturity for both bonds immediately decreases to 6%, Bond A’s bond will have a larger
percentage increase in value.
e. Bond A’s current yield is greater than that of Bond B.
ANSWER: e
POINTS: 1
TOPICS: Bond rates and prices

a. Two bonds have the same maturity and the same coupon rate. However, one is callable and the other is not.
The difference in prices between the bonds will be greater if the current market interest rate is below the
coupon rate than if it is above the coupon rate.
b. A callable 10-year, 10% bond should sell at a higher price than an otherwise similar noncallable bond.
c. Corporate treasurers dislike issuing callable bonds because these bonds may require the company to raise
additional funds earlier than would be true if noncallable bonds with the same maturity were used.
d. Two bonds have the same maturity and the same coupon rate. However, one is callable and the other is not.
The difference in prices between the bonds will be greater if the current market interest rate is above the
coupon rate than if it is below the coupon rate.
e. The actual life of a callable bond will always be equal to or less than the actual life of a noncallable bond with
the same maturity. Therefore, if the yield curve is upward sloping, the required rate of return will be lower on
the callable bond.
ANSWER: a
RATIONALE: a is correct because, with the current market rate below the coupon bond, both bonds will sell
at a premium, but the premium will be larger for the noncallable bond. The same logic
explains why d is false.
POINTS: 1

a. Senior debt is debt that has been more recently issued, and in bankruptcy it is paid off after junior debt because
the junior debt was issued first.
b. A company's subordinated debt has less default risk than its senior debt.
c. Convertible bonds generally have lower coupon rates than non-convertible bonds of similar default risk
because they offer the possibility of capital gains.
d. Junk bonds typically provide a lower yield to maturity than investment-grade bonds.
e. A debenture is a secured bond that is backed by some or all of the firm's fixed assets.
ANSWER: c
POINTS: 1
TOPICS: Types of debt

a. One disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the use of
debt until the bonds mature.
b. Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
c. Once a firm declares bankruptcy, it must be liquidated by the trustee, who uses the proceeds to pay
bondholders, unpaid wages, taxes, and legal fees.
d. Income bonds must pay interest only if the company earns the interest. Thus, these securities cannot bankrupt
a company prior to their maturity, and this makes them safer to the issuing corporation than "regular" bonds.
e. A firm with a sinking fund that gives it the choice of calling the required bonds at par or buying the bonds in
the open market would generally choose the open market purchase if the coupon rate exceeded the going
interest rate.
ANSWER: d
POINTS: 1
TOPICS: Miscellaneous concepts

a. The total return on a bond during a given year is based only on the coupon interest payments received.
b. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of
similar risk is 8%.
c. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains
constant.
d. For a given firm, its debentures are likely to have a lower yield to maturity than its mortgage bonds.
e. When large firms are in financial distress, they are almost always liquidated, whereas smaller firms are
generally reorganized.
ANSWER: c
POINTS: 1
TOPICS: Miscellaneous concepts

a. A bond is likely to be called if its coupon rate is below its YTM.

b. A bond is likely to be called if its market price is below its par value.
c. Even if a bond's YTC exceeds its YTM, an investor with an investment horizon longer than the bond's
maturity would be worse off if the bond were called.
d. A bond is likely to be called if its market price is equal to its par value.
e. A bond is likely to be called if it sells at a discount below par.
ANSWER: c
RATIONALE: A bond would not be called unless the current rate was below the YTM, in which case it
would sell at a premium, because only then would it be profitable to refund the bond. The
investor would get the funds, then reinvest at the new low market rate. Thus, the investor
would end up earning less than the YTM, even after receiving the call premium.
POINTS: 1
DIFFICULTY: MODERATE/CHALLENGING
TOPICS: Calling bonds

a. Assume that two bonds have equal maturities and are of equal risk, but one bond sells at par while the other
sells at a premium above par. The premium bond must have a lower current yield and a higher capital gains
yield than the par bond.
b. A bond’s current yield must always be either equal to its yield to maturity or between its yield to maturity and
its coupon rate.
c. If a bond sells at par, then its current yield will be less than its yield to maturity.
d. If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
e. A discount bond’s price declines each year until it matures, when its value equals its par value.
ANSWER: b
RATIONALE: Answer a is incorrect because a premium bond must have a negative capital gains yield.
Answer c is incorrect because a bond selling at par must have a current yield equal to its YTM.
Answer d is incorrect because a bond selling at below par must have a YTM > the coupon rate.
Answer e is incorrect because a discount bond's price must rise over time. That leaves answer b
as the only possibly correct answer. Note that YTM = Current yield +/- Capital gains yield, so
Current yield = YTM +/- Capital gains yield. The capital gains yield will be positive or negative
depending on whether the coupon rate is above or below the YTM. That means that the current
yield must either equal the YTM or be between the YTM and the coupon rate. b's correctness is
also demonstrated below:
Par bond Premium Discount
Par $1,000 $1,000 $1,000
Maturity 10 10 10
Coup rate 10% 11% 9%
YTM 10.00% 10.00% 10.00%
Ann coup $100.00 $110.00 $90.00
Price $1,000.00 $1,061.45 $938.55
Cur Yield 10.00% 10.36% 9.59% Equal to or between YTM and coupon rate.
Cap gain 0.00% -0.36% 0.41%
POINTS: 1
LEARNING OBJECTIVE FOFM.BRIG.17.07.04 - Bond Yields
S:
NATIONAL STANDARDS United States - BUSPROG.FOFM.BRIG.17.03 - BUSPROG: Analytic
:
TOPICS: Current yield and YTM
69. Assume that a noncallable 10-year T-bond has a 12% annual coupon, while a 15-year noncallable T-bond has an 8%
annual coupon. Assume also that the yield curve is flat, and all Treasury securities have a 10% yield to maturity. Which of
the following statements is CORRECT?
a. If interest rates decline, the prices of both bonds would increase, but the 15-year bond would have a larger
percentage increase in price.
b. If interest rates decline, the prices of both bonds would increase, but the 10-year bond would have a larger
percentage increase in price.
c. The 10-year bond would sell at a discount, while the 15-year bond would sell at a premium.
d. The 10-year bond would sell at a premium, while the 15-year bond would sell at par.
e. If the yield to maturity on both bonds remains at 10% over the next year, the price of the 10-year bond would
increase, but the price of the 15-year bond would fall.
ANSWER: a
RATIONALE: We can tell by inspection that c, d, and e are all incorrect. That leaves answers a and b as the
only possibly correct statements. Also, recognize that longer-term bonds, and also bonds
whose payments come late (like low coupon bonds) are most sensitive to changes in interest
rates. Thus, the 15-year, 8% coupon bond would be more sensitive to a decline in rates.
Finally, we can do some calculations to confirm that a is the correct answer:
Current situation Rates decline
10-year 15-year 10-year 15-year
Par $1,000 $1,000 $1,000 $1,000
Maturity 10 15 10 15
Coup rate 12% 8% 12% 8%

YTM 10.00% 10.00% 9.00% 9.00%

Ann coup $120 $80 $120 $80
Price $1,122.89 $847.88 $1,192.53 $919.39
% Gain 6.2% 8.4%
POINTS: 1


a. A zero coupon bond of any maturity will have more price risk than any coupon bond, even a perpetuity.
b. If their maturities and other characteristics were the same, a 5% coupon bond would have more price risk than
a 10% coupon bond.
c. A 10-year coupon bond would have more reinvestment risk than a 5-year coupon bond, but all 10-year coupon
bonds have the same amount of reinvestment risk.
d. A 10-year coupon bond would have more price risk than a 5-year coupon bond, but all 10-year coupon bonds
have the same amount of price risk.
e. If their maturities and other characteristics were the same, a 5% coupon bond would have less price risk than a
10% coupon bond.
ANSWER: b
POINTS: 1
REFERENCES: 7-7 Assessing a Bond’s Riskiness


71. Listed below are some provisions that are often contained in bond indentures. Which of these provisions, viewed
alone, would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond?
1. Fixed assets are used as security for a bond.
2. A given bond is subordinated to other classes of debt.
3. The bond can be converted into the firm's common stock.
4. The bond has a sinking fund.
5. The bond has a call provision.
6. The indenture contains covenants that restrict the use of additional debt.
a. 1, 3, 4, 6
b. 1, 4, 6
c. 1, 2, 3, 4, 6
d. 1, 2, 3, 4, 5, 6
e. 1, 3, 4, 5, 6
ANSWER: a
POINTS: 1
TOPICS: Bond indenture
72. Suppose a new company decides to raise a total of $200 million, with $100 million as common equity and $100
million as long-term debt. The debt can be mortgage bonds or debentures, but by an iron-clad provision in its charter, the
company can never raise any additional debt beyond the original $100 million. Given these conditions, which of the
following statements is CORRECT?
a. The higher the percentage of debt represented by mortgage bonds, the riskier both types of bonds will be and,
consequently, the higher the firm’s total dollar interest charges will be.
b. If the debt were raised by issuing $50 million of debentures and $50 million of first mortgage bonds, we could
be certain that the firm’s total interest expense would be lower than if the debt were raised by issuing $100
million of debentures.
c. In this situation, we cannot tell for sure how, or even whether, the firm’s total interest expense on the $100
million of debt would be affected by the mix of debentures versus first mortgage bonds. The interest rate on
each type of bond would increase as the percentage of mortgage bonds used was increased, but the average
cost might well be such that the firm’s total interest charges would not be affected materially by the mix
between the two.

d. The higher the percentage of debentures, the greater the risk borne by each debenture, and thus the higher the
required rate of return on the debentures.
e. If the debt were raised by issuing $50 million of debentures and $50 million of first mortgage bonds, we could
be certain that the firm’s total interest expense would be lower than if the debt were raised by issuing $100
million of first mortgage bonds.
ANSWER: c
RATIONALE: The higher the percentage of mortgage bonds, the less the collateral backing each bond, so
these bonds' risk and thus required return would be higher. Also, the higher the percentage of
mortgage bonds, the less free assets would be backing the debentures, so their risk and
required return would also be higher. However, mortgage bonds are less risky than
debentures, so mortgage bond rates are lower than rates on debentures. We end up with a
situation where the greater the percentage of mortgage bonds, the higher the rate on both
types of debt, but the average cost to the company could be higher, lower, or constant. Note
that we could draw a graph of the situation, with % mortgage on the horizontal axis and rates
on the vertical axis, the graph would look like the WACC graph in the cost of capital chapter.
POINTS: 1
TOPICS: Costs of types of debt
73. A company is planning to raise $1,000,000 to finance a new plant. Which of the following statements is CORRECT?
a. The company would be especially eager to have a call provision included in the indenture if its management
thinks that interest rates are almost certain to rise in the foreseeable future.
b. If debt is used to raise the million dollars, but $500,000 is raised as first mortgage bonds on the new plant and
$500,000 as debentures, the interest rate on the first mortgage bonds would be lower than it would be if the
entire $1 million were raised by selling first mortgage bonds.
c. If two classes of debt are used (with one senior and the other subordinated to all other debt), the subordinated
debt will carry a lower interest rate.
d. If debt is used to raise the million dollars, the cost of the debt would be lower if the debt were in the form of a
fixed-rate bond rather than a floating-rate bond.
e. If debt is used to raise the million dollars, the cost of the debt would be higher if the debt were in the form of a
mortgage bond rather than an unsecured term loan.
ANSWER: b
RATIONALE: In statement b, note that if only $500,000 of 1st mortgage bonds were secured by $1 million
of property, each of those bonds would be less risky than if there were $1 million of bonds
backed by the $1 million of property. Note too that the cost of the total $1 million of debt
would be an average of the cost of the mortgage bonds and the debentures, and that average
cost could be higher, lower, or the same as if only mortgage bonds or only debentures were
used.
POINTS: 1
TOPICS: Costs of types of debt
74. Assuming all else is constant, which of the following statements is CORRECT?
a. Other things held constant, a 20-year zero coupon bond has more reinvestment risk than a 20-year coupon
bond.
b. Other things held constant, for any given maturity, a 1.0 percentage point decrease in the market interest rate
would cause a smaller dollar capital gain than the capital loss stemming from a 1.0 percentage point increase
in the interest rate.
c. From a corporate borrower’s point of view, interest paid on bonds is not tax-deductible.
d. Other things held constant, price sensitivity as measured by the percentage change in price due to a given
change in the required rate of return decreases as a bond’s maturity increases.
e. For a bond of any maturity, a 1.0 percentage point increase in the market interest rate (rd) causes a larger dollar
capital loss than the capital gain stemming from a 1.0 percentage point decrease in the interest rate.
ANSWER: e
RATIONALE: It is relatively easy to eliminate a, c, and d. When choosing between b and e, think about the
graph that shows the relationship between a bond's price and the going interest rate. This
curve is concave, indicating that at any interest rate, the decline in price from an increase in
rates is less than the gain in price from a similar interest rate decline. It would be easy to
confirm this statement with an example.
POINTS: 1

75. Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment
of $65. The market requires an interest rate of 6.7% on these bonds. What is the bond's price?
a. $987.92
b. $1,155.86
c. $770.58
d. $1,215.14
e. $1,047.19
ANSWER: a
RATIONALE: N 8
I/YR 6.7%
PMT $65
FV $1,000
PV $987.92
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True
TOPICS: Bond valuation: annual
OTHER: Multiple Choice: Problem
76. Ryngaert Inc. recently issued noncallable bonds that mature in 15 years. They have a par value of $1,000 and an
annual coupon of 5.7%. If the current market interest rate is 7.7%, at what price should the bonds sell?
a. $924.70
b. $652.25
c. $1,015.52
d. $891.68
e. $825.63
ANSWER: e
RATIONALE: Coupon rate 5.70%
PMT $57.00
N 15
I/YR 7.70%
FV $1,000
PV $825.63
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True
77. Adams Enterprises’ noncallable bonds currently sell for $1,480. They have a 15-year maturity, an annual coupon of
$85, and a par value of $1,000. What is their yield to maturity?
a. 3.31%
b. 4.14%
c. 3.52%
d. 4.55%
e. 4.64%
ANSWER: b
RATIONALE: N 15
PV $1,480
PMT $85
FV $1,000
I/YR 4.14%
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True
TOPICS: Yield to maturity
78. Dyl Inc.'s bonds currently sell for $970 and have a par value of $1,000. They pay a $65 annual coupon and have a 15-
year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?
a. 6.83%
b. 7.92%
c. 5.26%
d. 5.87%
e. 6.96%
ANSWER: a
RATIONALE: N 15
PV $970
PMT $65
FV $1,000
I/YR 6.83% = YTM
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True
79. Radoski Corporation's bonds make an annual coupon interest payment of 7.35% every year. The bonds have a par
value of $1,000, a current price of $1,470, and mature in 12 years. What is the yield to maturity on these bonds?
a. 2.06%
b. 3.14%
c. 2.63%
d. 2.52%
e. 2.71%
ANSWER: e
RATIONALE: Coupon rate 7.35%
N 12
PV = Price $1,470
PMT $73.50
FV = Par $1,000
I/YR 2.71% =YTM
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True


80. Sadik Inc.'s bonds currently sell for $1,250 and have a par value of $1,000. They pay a $105 annual coupon and have a
15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)?
a. 5.97%
b. 6.28%
c. 5.84%
d. 7.79%
e. 5.03%
ANSWER: b
RATIONALE:
N 5
PV $1,250
PMT $105
FV $1,100
I/YR = YTC 6.28%
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True
TOPICS: Yield to call
81. Malko Enterprises’ bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of $75, and a par
value of $1,000. What is their current yield?
a. 5.74%
b. 7.30%
c. 5.22%
d. 7.76%

e. 6.52%
ANSWER: e
RATIONALE: PV $1,150
PMT $75
Current yield = 6.52%
POINTS: 1
DIFFICULTY: EASY
HAS VARIABLES: True
TOPICS: Current yield
82. Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The
bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 9.5% nominal yield to
maturity on this investment, what is the maximum price you should be willing to pay for the bond?
a. $1,140.00
b. $1,010.00
c. $1,000.00
d. $1,220.00
e. $980.00
ANSWER: c
RATIONALE: Par value $1,000
Coupon rate 9.5%
Periods/year 2
Yrs to maturity 20
Periods = Yrs to maturity Periods/year 40
Required rate 9.5%
Periodic rate = Required rate / 2 = I/YR 4.75%
PMT per period = Coupon rate/2 Par value $47.50
Maturity value = FV $1,000
PV $1,000.00
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 7-6 Bonds with Semiannual Coupons
HAS VARIABLES: True

LEARNING OBJECTIVES: FOFM.BRIG.17.07.06 - Bonds with Semiannual Coupons

TOPICS: Bond valuation: semiannual
83. Grossnickle Corporation issued 20-year, noncallable, 7.1% annual coupon bonds at their par value of $1,000 one year
ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now
have 19 years to maturity?
a. $1,114.58
b. $1,007.86
c. $1,090.86
d. $1,185.72
e. $1,102.72
ANSWER: d
RATIONALE: Par value = Maturity value = FV $1,000
Coupon rate 7.1%
Years to maturity = N 19
Required rate = I/YR 5.5%
(Coupon rate)(Par value) = PMT $71
PV $1,185.72
POINTS: 1
HAS VARIABLES: True
84. McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000
par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred
to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current
levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM;
it is possible to get a negative answer.)
a. 2.04%
b. 2.33%
c. 2.77%
d. 2.62%
e. 2.98%
ANSWER: d
RATIONALE: If held to maturity: If called in 5 years:
N = Maturity 25 N = Call 5
Price = PV $1,250 PV $1,250
PMT $90 PMT $90
FV = Par $1,000 FV = Call Price $1,050
I/YR = YTM 6.88% I/YR = YTC 4.26%
Difference: YTM - YTC = 2.62%
POINTS: 1
HAS VARIABLES: True
TOPICS: YTM and YTC
85. Taussig Corp.'s bonds currently sell for $1,150. They have a 6.35% annual coupon rate and a 20-year maturity, but
they can be called in 5 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and
refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into
the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these
bonds?
a. 3.40%
b. 4.20%
c. 3.99%
d. 3.57%
e. 5.04%
ANSWER: b
RATIONALE: If the coupon rate exceeds the YTM, then it is likely that the bonds will be called and
replaced with new, lower coupon bonds. In that case, the YTC will be earned. Otherwise, one
should expect to earn the YTM.
If held to maturity: If called:
Par value $1,000 Par value $1,000
Coupon 6.35% Coupon 6.35%
N 20 N 5
Price = PV $1,150 PV $1,150
PMT = Par Coupon $63.50 PMT $63.50
FV $1,000.00 FV $1,067.50
I/YR = YTM 5.13% I/YR = YTC 4.20%
Expected rate of return = YTC if Coupon > YTM, otherwise it is YTM, so expected rate of
return = YTC = 4.20%
POINTS: 1
HAS VARIABLES: True
TOPICS: YTM and YTC
86. A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $825. If the yield
to maturity remains at its current rate, what will the price be 5 years from now?
a. $801.76
b. $626.38
c. $843.52
d. $835.17
e. $726.60
ANSWER: d
RATIONALE: First find the YTM at this time, then use the YTM with the other data to find the bond's price
5 years hence.
Par value $1,000
Coupon rate: 8.50% Value in 5 years:
N 25 N 20
PV $825 I/YR 10.50%
PMT $85 PMT $85
FV $1,000 FV $1,000
I/YR 10.50% PV $835.17
POINTS: 1
HAS VARIABLES: True

TOPICS: Future annual bond value
87. Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The
going interest rate (rd) is 5.30%, based on semiannual compounding. What is the bond’s price?
a. $1,200.05
b. $1,164.05
c. $948.04
d. $1,224.05
e. $1,500.06
ANSWER: a
RATIONALE: Par value = FV $1,000
Coupon rate 7.25%
Periods/year 2
Yrs to maturity 15
Periods = Years 2 = N 30
Going annual rate = YTM = rd 5.30%
Periodic rate = rd / 2 = I/YR 2.65%
Coupon rate Par / 2 = PMT $36.25
PV $1,200.05
POINTS: 1
HAS VARIABLES: True
TOPICS: Bond valuation: semiannual
88. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from
historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows:
Long-term debt (bonds, at par) $23,500,000

Preferred stock 2,000,000
Common stock ($10 par) 10,000,000
Retained earnings 4,000,000
Total debt and equity $39,500,000
The bonds have a 8.4% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from
today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?
a. $19,849,158
b. $21,238,599
c. $15,085,360
d. $18,459,717
e. $22,231,057
ANSWER: a
RATIONALE: Calculate the price of each bond:
Coupon rate 8.4%
Par value = FV $1,000
Yrs to maturity 10
Periods/Yr. 2
Periods = Years 2 = N 20
Going annual rate = rd = YTM 11.0%
Periodic rate = rd / 2 = I/YR 5.5%
Coupon rate Par / 2 = PMT $42.00
Price of the bonds = PV $844.65
Determine the number of bonds:
Book value on balance sheet $23,500,000
Par value $1,000
Number of bonds = Book value/Par value 23,500
Calculate the market value of bonds:
Mkt value = PV Number of bonds = $19,849,158
POINTS: 1
HAS VARIABLES: True
TOPICS: Market value: semiannual
89. Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments,
and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of
$1,085. What is the bond’s nominal yield to call?
a. 6.83%
b. 5.55%
c. 4.88%
d. 5.91%
e. 6.10%
ANSWER: e
RATIONALE: First, use the given data to find the bond's current price. Then use that price to find the YTC.
Coupon rate 8.25%
YTM 6.50%
Maturity 15 Yrs to call 6
Par value $1,000 Call price $1,085
Periods/year 2 Determine the bond's YTC
Determine the bond's price N 12
PMT/period $41.25 PV $1,166.09
N 30 PMT $41.25
I/YR 3.25% FV $1,085.00
FV $1,000.00 I/YR 3.05%
PV = Price $1,166.09 Nom. YTC 6.10%
POINTS: 1
HAS VARIABLES: True
TOPICS: Semiannual YTM and YTC
90. O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal annual, not
semiannual yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $700. What is the bond's
nominal coupon interest rate?
a. 4.86%
b. 7.01%
c. 6.15%
d. 5.72%
e. 6.58%
ANSWER: c
RATIONALE: First, use the data provided to find the dollar coupon payment per 6 months, then multiply by
2 to get the annual coupon, and then divide by the par value to find the coupon rate. One
could use the indicated data and solve for the price. It would be $700, which confirms the
rate.
Par value = FV $1,000
Years to maturity 25
Periods/year 2
Years periods/year = N 50
YTM 9.25%
Periodic rate = YTM/2 = I/YR 4.625%
Price today = PV $700
PMT, function of N, I/YR, PV, and FV = semiannual pymt $30.76
Annual coupon payment = semiannual payment 2 = $61.52
Coupon rate = Annual coupon payment / Par value = 6.15%
POINTS: 1
HAS VARIABLES: True
TOPICS: Semiannual bond coupon
91. Kebt Corporation's Class Semi bonds have a 12-year maturity and an 6.00% coupon paid semiannually (3% each 6
months), and those bonds sell at their $1,000 par value. The firm's Class Ann bonds have the same risk, maturity, nominal
interest rate, and par value, but these bonds pay interest annually. Neither bond is callable. At what price should the
annual payment bond sell?
a. $1,032.19
b. $992.49
c. $883.32
d. $1,071.89
e. $1,002.42
ANSWER: b
RATIONALE: These two bonds should provide the same EFF%. Therefore, we can find the EFF% for the
semiannual bond and then use it as the YTM for the annual payment bond. At the calculated
price, the two bonds will have YTMs with the same EFF%. Note too that the semiannual
payment bond must have a higher price than the annual bond because then it receives the
same cash flow, but faster. Therefore, the annual bond must sell at a price below the $1,000
par value at which the semiannual bond sells.
Semiannual bond Annual bond
Coupon rate=Nominal rate 6.00% Coupon rate 6.00%
Payment per period $30.00 Pmt/Period $60.00
Years to maturity 12 Yrs to maturity 12
Periods/year 2 Periods/year 1
Total periods 24 Total periods 12

EFF% = (1+Nom rate/2)2 - 1 6.090% EFF%=YTM 6.090%

Price $1,000.00 Price $992.49
POINTS: 1
HAS VARIABLES: True
TOPICS: Bonds: semiannual EFF%
92. Moon Software Inc. is planning to issue two types of 25-year, noncallable bonds to raise a total of $6 million, $3
million from each type of bond. First, 3,000 bonds with a 10% semiannual coupon will be sold at their $1,000 par value to
raise $3,000,000. These are called "par" bonds. Second, Original Issue Discount (OID) bonds, also with a 25-year
maturity and a $1,000 par value, will be sold, but these bonds will have a semiannual coupon of only 6.75%. The OID
bonds must be offered at below par in order to provide investors with the same effective yield as the par bonds. How
many OID bonds must the firm issue to raise $3,000,000? Disregard flotation costs, and round your final answer up to a
whole number of bonds.
a. 3,669
b. 3,327
c. 3,925
d. 4,821
e. 4,266
ANSWER: e
RATIONALE: The par bond has a coupon rate of 10% and a periodic rate of 5%, and it sells at par.
Therefore, the going nominal rate must be 10% with an EFF% of 10.25%. The OID bond
must provide the same EFF%, because it is equally risky. Therefore, it must be evaluated
with the parameters shown below to find its price, which is then used to find the number of
bonds to be issued. Note that if the OID bond is based on a 5% periodic rate, its EFF% will
also be 10.25%.
Bond B: Issued at a discount (OID
Bond A: Issued at par:
bonds):
Coupon rate 10.00% Coupon rate 6.75%
Periods/year 2 Periods/year 2
Periodic rate 5.00% Periodic rate 5.00%
Years to maturity 25 Years to maturity 25
Years Periods/year = N 50 Years Period/year = N 50
PMT per period = Coupon $50.00 $33.75
PMT per period = Coupon Par/2
Par/2
Test Bank for Fundamentals of Financial Management Concise Edition 10th Edition by Brigham
PV = Price $1,000 PV = Price $703.3412

Funds needed from OID bonds $3,000,000
Number of bonds = $3,000,000/OID 4,265.36
price
Number of bonds, rounded up 4,266
POINTS: 1
HAS VARIABLES: True
TOPICS: Bonds: semiannual and OID
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In another letter, written the same day, General Smith rehearsed
the story in a few words, which proved that Smith had a full share of
the shrewdness that was lacking in Jefferson. He saw the future as
clearly as politicians often saw what philosophers overlooked; but his
jealousy of Jefferson appeared in every word:[306]—
“The Senate, agreeably to the first construction (given by General
Washington and his Administration, of which Jefferson was one,—
given, too, immediately after the knowledge of what was the intention
of the convention that framed it), did unanimously advise the
President to negotiate a treaty with Great Britain. The Senate agreed
to his nomination of the negotiators. A treaty was effected. It arrives. It
is well known that he was coerced by the Senate to the measure; and
he refuses to submit it to their approbation. What a responsibility he
takes! By sending it back he disgraces his ministers, and Monroe is
one. Monroe and Pinkney come home, and in justification publish the
treaty. It may appear good to the eyes of all unprejudiced men,—I
suspect it will. By a refusal to accede to it the British continue their
depredations, to the amount perhaps of their whole system of ‘You
shall not trade in time of war where you are refused in time of peace;’
the impressment is carried to an excess bounded only by their power;
immense losses are sustained; a general outcry will ensue; all will say,
‘If Monroe’s treaty had succeeded, those losses would not have
happened; why was it refused?’ Jealousy of Monroe, and
unreasonable antipathy by Jefferson and Madison to Great Britain!—
this will be said, this will be believed. And Monroe will be brought
forward; new parties will arise, and those adverse politically will be
brought together by interest.... Shall we put all to jeopardy because
we have not got all we ask? Will we go to war? No! What will we do to
coerce? More non-importation. Will Congress under such
circumstances consent to continue their non-importation? I suspect
not; I cannot believe they will. Then where shall we be? J. Randolph
will take his stand and ask, ‘Shall we hazard everything for a set of
men who, etc.? What, put the landed interest to such inconvenience!
The fair merchant is satisfied; the country is flourishing,’ etc. But I
have not time to make a speech. Monroe will be called a martyr, and
the martyr will be the President. And why? Because he has done right,
and his opponent has advised wrong. The people care little or nothing
about the seamen.”
The more closely the subject was studied the more clearly it
appeared that Monroe had to all appearance knowingly embarrassed
the Administration by signing a treaty in contravention of the
President’s orders; but Jefferson added unnecessarily to his
embarrassment by refusing the treaty before he read it. Tacit
abandonment of impressments was the utmost concession that the
President could hope from England, and even this he must probably
fight for; yet he refused to consult the Senate on the merits of
Monroe’s treaty for a reason which would have caused the
withholding of every treaty ever made with England. That the public
should be satisfied with this imperious treatment was an extravagant
demand. No act of Jefferson’s administration exposed him to more
misinterpretation, or more stimulated a belief in his hatred of England
and of commerce, than his refusal to lay Monroe’s treaty before the
Senate.
Perhaps the President would have been less decided had he
known at first how faulty the treaty was. Not until it had been studied
for weeks did all its faults become evident; and not until it was read
in the light of Lord Howick’s Order in Council did its character admit
of no more doubt. When news of this order reached Washington,
about ten days after the treaty, Madison wrote to Erskine a letter[307]
which showed an effort to treat the new restriction of neutral trade as
though it might have some shadow of legality in the background, and
as though it were not directed solely against America; but the truth
soon became too evident for such mild treatment, and Madison was
obliged ten days afterward to interrupt his study of Monroe’s treaty in
order to tell Erskine that the operation of the new order “would be a
proceeding as ruinous to our commerce as contrary to our essential
rights.”[308]
To Monroe the President wrote with the utmost forbearance and
kindness.[309] Instead of reproaching, Jefferson soothed the irritation
of his old friend, contradicted newspaper reports which were
calculated to wound Monroe’s feelings, and pressed upon him the
government of New Orleans Territory: “It is the second office in the
United States in importance, and I am still in hopes you will accept it;
it is impossible to let you stay at home while the public has so much
need of talents.” I regard to the treaty he said little; but what he did
say was more severe than any criticism yet made to others. “depend
on it, my dear Sir, that it will be considered as a hard treaty when it is
known. The British commissioners appear to have screwed every
Article as far as it would bear,—to have taken everything and yielded
nothing.” He urged Monroe, if nothing better could be got, “to back
out of the negotiation” as well as he could, letting it die insensibly,
and substituting some informal agreement until a more yielding
temper should rise. Next the President wrote privately to Bowdoin,
his wandering minister to Spain, to whom Armstrong had shut the
doors of the legation at Paris for betraying its secrets, and who in
return was abusing Armstrong with recriminations. If a quarrel should
arise with England, it might at least be made to bring Florida again
within reach.
“I have but little expectation,” wrote the President to Bowdoin,[310]
“that the British government will retire from their habitual wrongs in the
impressment of our seamen, and am certain that without that we will
never tie up our hands by treaty from the right of passing a non-
importation or non-intercourse Act to make it her interest to become
just. This may bring on a war of commercial restrictions. To show,
however, the sincerity of our desire for conciliation, I have suspended
the Non-importation Act. This state of things should be understood at
Paris, and every effort used on your part to accommodate our
differences with Spain under the auspices of France, with whom it is
all important that we should stand in terms of the strictest cordiality. In
fact we are to depend on her and Russia for the establishment of
neutral rights by the treaty, of peace, among which should be that of
taking no persons by a belligerent out of a neutral ship, unless they be
the soldiers of an enemy. Never did a nation act toward another with
more perfidy and injustice than Spain has constantly practised against
us; and if we have kept our hands off of her till now, it has been purely
out of respect to France, and from the value we set on the friendship
of France. We expect, therefore, from the friendship of the Emperor
that he will either compel Spain to do us justice or abandon her to us.
We ask but one month to be in possession of the city of Mexico.”
In reality Jefferson needed somewhat more than a month to be in
possession of Mexico, although the Spaniards might without much
difficulty have reached New Orleans in less time. Had the Federalist
press been able to print the letter to Bowdoin, with its semi-
admissions of intent to wage a commercial war against England in
dependence upon Napoleon in order to gain the Floridas, the
scandal would have been as great as that caused by the famous
letters to Mazzei and Paine; but in truth this flighty talk had no
influence or importance, and the time was close at hand when
Jefferson was to become helpless. Between the will of England and
France on one side and the fixed theories of Virginia and
Pennsylvania on the other, Jefferson’s freedom of action
disappeared.
Madison, who rarely accepted either horn of a dilemma with
much rapidity, labored over new instructions to Monroe which were
to make the treaty tolerable, and called Gallatin and General Smith
to his aid, with no other result than to uncover new and insuperable
difficulties. April 20 he wrote to Jefferson at Monticello:[311]—
“The shape to be given to the instructions to our commissioners
becomes more and more perplexing. I begin to suspect that it may
eventually be necessary to limit the treaty to the subject of
impressments, leaving the colonial trade, with other objects, to their
own course and to the influence which our reserved power over our
imports may have on that course. In practice the colonial trade and
everything else would probably be more favored than they are by the
Articles forwarded, or would be by any remodifications to be expected.
The case of impressments is more urgent. Something seems
essential to be done, nor is anything likely to be done without carrying
fresh matter in the negotiation. I am preparing an overture to disuse
British seamen, in the form of an ultimatum, graduated from an
exception of those who have been two years in our navigation to no
exception at all other than such as have been naturalized.”
A few days later news arrived that the Whigs had been driven
from office, and a high Tory ministry had come into power. Madison
was more than ever perplexed, but did not throw aside his treaty.
“A late arrival from London,” he wrote again,[312] April 24,
“presents a very unexpected scene at St. James’s. Should the
revolution stated actually take place in the Cabinet, it will subject our
affairs there to new calculations. On one hand the principles and
dispositions of the new Ministry portend the most unfriendly course.
On the other hand, their feeble and tottering situation and the force of
their ousted rivals, who will probably be more explicit in maintaining
the value of a good understanding with this country, cannot fail to
inspire caution. It may happen also that the new Cabinet will be less
averse to a tabula rasa for a new adjustment than those who formed
the instrument to be superseded.”
Jefferson’s reply to these suggestions showed no anxiety except
the haunting fear of a treaty,—a fear which to Monroe’s eyes could
have no foundation. “I am more and more convinced,” the President
wrote April 21,[313] “that our best course is to let the negotiation take
a friendly nap;” and May 1 he added:[314] “I know few of the
characters of the new British Administration. The few I know are true
Pittites and anti-American. From them we have nothing to hope but
that they will readily let us back out.” In view of George Canning’s
character and antecedents and of Spencer Perceval’s speeches,
Jefferson’s desire to be allowed to back out of his treaty was
superfluous. That Canning and Perceval would make any effort to
hold him to his bargain was quite unlikely, but that they would let him
back out was still more so. They had in view more expeditious ways
of ejecting him.
Nevertheless Madison was allowed to perfect his new
instructions to Monroe and Pinkney. May 20 they were signed and
sent. Before they reached London a British frigate had answered
them in tones which left little chance for discussion.
CHAPTER XIX.
March 30, 1807, in a room at the Eagle Tavern in Richmond,
Aaron Burr was brought before Chief-Justice Marshall for
examination and commitment. Although Burr had been but a few
days in the town, he was already treated by many persons as though
he had conferred honor upon his country. Throughout the United
States the Federalists, who formed almost the whole of fashionable
society, affected to disbelieve in the conspiracy, and ridiculed
Jefferson’s sudden fears. The Democrats had never been able to
persuade themselves that the Union was really in danger, or that
Burr’s projects, whatever they were, had a chance of success; and in
truth Burr’s conspiracy, like that of Pickering and Griswold, had no
deep roots in society, but was mostly confined to a circle of well-
born, well-bred, and well-educated individuals, whose want of moral
sense was one more proof that the moral instinct had little to do with
social distinctions. In the case of Burr, Jefferson himself had
persistently ignored danger; and no one denied that if danger ever
existed, it had passed. Burr was fighting for his life against the power
of an encroaching government; and human nature was too simply
organized to think of abstract justice or remote principles when
watching the weak fight for life against the strong. Even the
Democrats were more curious to see Burr than to hang him; and had
he gone to the gallows, he would have gone as a hero, like Captain
Macheath amidst the admiring crowds of London.
Between Captain Macheath and Colonel Burr was more than one
point of resemblance, and the “Beggar’s Opera” could have been
easily paralleled within the prison at Richmond; but no part of Burr’s
career was more humorous than the gravity with which he took an
injured tone, and maintained with success that Jefferson, being a
trivial person, had been deceived by the stories of Eaton and
Wilkinson, until, under the influence of causeless alarm, he had
permitted a wanton violation of right. From the first step toward
commitment, March 30, to the last day of the tedious trials, October
20, Burr and his counsel never ceased their effort to convict
Jefferson; until the acquittal of Burr began to seem a matter of
secondary importance compared with the President’s discomfiture.
Over this tournament the chief-justice presided as arbiter.
Blennerhassett’s island, where the overt act of treason was charged
to have taken place, lay within the chief-justice’s circuit. According as
he might lean toward the accused or toward the government, he
would decide the result; and therefore his leanings were a matter of
deep interest. That he held Federalist prejudices and nourished a
personal dislike to Jefferson was notorious; but apart from political
feelings he had given no clew to his probable legal bias except in his
recent decision upon the case of Bollman and Swartwout. In
discharging these two agents of Burr on the ground that no overt act
of levying war was alleged against them, Marshall had taken
occasion to define the law of treason as a guide to the attorney-
general in the coming indictment of Burr:—
“It is not the intention of the Court to say that no individual can be
guilty of this crime who has not appeared in arms against his country.
On the contrary, if war be actually levied,—that is, if a body of men be
actually assembled for the purpose of effecting by force a treasonable
purpose,—all those who perform any part, however minute, or
however remote from the scene of action, and who are actually
leagued in the general conspiracy, are to be considered as traitors.
But there must be an actual assembling of men for the treasonable
purpose, to constitute a levying of war.”
On the strength of this opinion, the attorney-general undertook to
convict Burr of treason for the acts committed under his direction at
Blennerhassett’s island, although at the time when these acts were
committed Burr himself was in Kentucky, two hundred miles away.
The task was difficult, and Burr’s experience as a lawyer enabled
him to make it more difficult still. He retained the ablest counsel at
the bar. First of these was Edmund Randolph, prominent among the
older Virginia lawyers, who had been attorney-general and Secretary
of State in President Washington’s Cabinet. Edmund Randolph’s
style of address was ponderous, and not always happy; to balance
its defects Burr employed the services of John Wickham, another
Virginian, whose versatility and wit were remarkable. A third
Virginian, Benjamin Botts, was brought into the case, and proved a
valuable ally. Finally Luther Martin was summoned from Baltimore;
and Martin’s whole heart was with his client. In defending Justice
Chase, Luther Martin had made a great name; but hatred for the
Democrats and their President became a secondary passion in his
breast. His zeal for Burr was doubled by a sudden idolatry which the
sexagenarian conceived for Burr’s daughter Theodosia, who came to
her father’s side at Richmond.
The government was represented by no one of equal force with
these opponents. John Breckinridge, the Attorney-General of the
United States, died in December, 1806. Jan. 20, 1807, President
Jefferson appointed Cæsar A. Rodney to the post. Although
Rodney’s abilities were respectable, he could hardly have wished to
be confronted at once by the most important and difficult State
prosecution ever tried under Executive authority. Rodney’s duties or
his health prevented him from attendance. He barely appeared at
Richmond in the preliminaries, and then left the case in the hands of
the district-attorney, George Hay, who took his orders directly from
Jefferson, with whom he was in active correspondence. To assist
Hay the President engaged the services of William Wirt, then thirty-
five years old, and promising to become an ornament to the bar; but
in the profession of the law age gave weight, and Wirt, though
popular, conscientious, admired, and brilliant in a florid style of
oratory, suffered as a lawyer from his youth and his reputation as an
orator. He was hardly more capable than Hay of conducting a case
which drew upon every resource of personal authority. The third
counsel, Alexander McRae, Lieutenant-Governor of Virginia, was
inferior both in ability and in tact to either of his associates. His
temper irritated Hay and offended the Court, while his arguments
added little strength to the prosecution.
The first object of the government was to commit Burr for trial on
the charge of treason as well as of misdemeanor; but Marshall
promptly checked all hopes of obtaining aid from the court. April 1
the chief-justice delivered an opinion on the question of commitment,
and took that opportunity to give the district-attorney a warning.
Declining to commit Burr for treason without evidence stronger than
the affidavits of Eaton and Wilkinson, Marshall blamed the Executive
with asperity for neglect of duty in providing proof of treason:—
“Several months have elapsed since this fact did occur, if it ever
occurred. More than five weeks have elapsed since the opinion of the
Supreme Court has declared the necessity of proving the fact if it
exists. Why is it not proved? To the Executive government is intrusted
the important power of prosecuting those whose crimes may disturb
the public repose or endanger its safety. It would be easy in much less
time than has intervened since Colonel Burr has been alleged to have
assembled his troops, to procure affidavits establishing the fact.”
Accordingly Burr was committed only for misdemeanor, and five
securities immediately offered themselves on his behalf. At three
o’clock on the afternoon of April 1 he was again at liberty, under
bonds for ten thousand dollars to appear at the next circuit court,
May 22, at Richmond.
Marshall’s reproof of Executive slowness was not altogether
respectful to the co-ordinate branch of government. No doubt
treasonable assemblages had taken place in December, and
affidavits could have been brought from Marietta or Nashville within
six or eight weeks had the government known precisely what would
be needed, or where the evidence was to go; but no judge could
reasonably require that the Executive should within five weeks obey
a hint from the Supreme Court which implied a long correspondence
and inquiry at spots so remote as Blennerhassett’s island, Lexington,
Nashville, Fort Massac, and Chickasaw Bluffs. Jefferson was
naturally indignant at being treated with so little courtesy. He wrote
with extreme bitterness about Marshall’s “tricks to force trials before
it is possible to collect the evidence.”[315] He returned threat for
threat, with something in addition:—
“In what terms of decency can we speak of this? As if an express
could go to Natchez or the mouth of the Cumberland and return in five
weeks, to do which has never taken less than twelve!... But all the
principles of law are to be perverted which would bear on the favorite
offenders who endeavor to overturn this odious republic!... All this,
however, will work well. The nation will judge both the offender and
judges for themselves. If a member of the Executive or Legislature
does wrong, the day is never far distant when the people will remove
him. They will see then and amend the error in our Constitution which
makes any branch independent of the nation. They will see that one of
the great co-ordinate branches of the government, setting itself in
opposition to the other two and to the common-sense of the nation,
proclaims impunity to that class of offenders which endeavors to
overturn the Constitution, and are protected in it by the Constitution
itself; for impeachment is a farce which will not be tried again. If their
protection of Burr produces this amendment, it will do more good than
his condemnation would have done; ... and if his punishment can be
commuted now for a useful amendment of the Constitution, I shall
rejoice in it.”
In substance Jefferson said that if Marshall should suffer Burr to
escape, Marshall himself should be removed from office. No secret
was made of this intention. The letter in which Jefferson announced
the threat was written to the Virginia senator William B. Giles, who
had been foremost in every attack upon the Judiciary, and would
certainly lead the new one; but Giles was not the confidant of a
secret,—the idea was common, as Marshall knew. The little society
that swarmed in the court-room and in the streets of Richmond could
see without an effort that the President courted a challenge from
Marshall, and that the chief-justice on his side, for a second or third
time, welcomed a trial of skill and address with the President. If
Marshall was in truth the gloomy and malignant conspirator that
Jefferson imagined him to be, he might easily excuse or justify the
President’s intended course.
Punctually, May 22, the next act began. The question of
commitment had been a matter of no great consequence; that of
indictment was vital. Burr must be indicted, not merely for
misdemeanor, but for treason; and to leave no doubt of success, the
government summoned a cloud of witnesses to appear before the
grand jury. The town swarmed with conspirators and government
agents. The grand jury—containing some of the most respected
citizens of Virginia—was sworn, and the court instructed the clerk to
place John Randolph as foreman. A long delay ensued. General
Wilkinson, the most important witness for government, was on his
way from New Orleans; and while waiting his arrival from day to day,
the grand jury took evidence and the court listened to the disputes of
counsel. The district-attorney moved to commit Burr on the charge of
treason, while Burr on his side moved for a subpœna duces tecum to
be directed to the President, requiring him to produce certain papers
in evidence. This motion was evidently part of a system adopted by
the defence for annoying and throwing odium on the Executive,—a
system which Burr’s counsel rather avowed than concealed, by
declaiming against the despotism of government and the persecution
of which Burr was a victim. Luther Martin, at the first moment of his
appearance in court, launched into an invective against Jefferson:—
“The President has undertaken to prejudge my client by declaring
that ‘of his guilt there can be no doubt.’ He has assumed the
knowledge of the Supreme Being himself, and pretended to search
the heart of my highly respected friend. He has proclaimed him a
traitor in the face of that country which has rewarded him. He has let
slip the dogs of war, the hell-hounds of persecution, to hunt down my
friend. And would this President of the United States, who has raised
all this absurd clamor, pretend to keep back the papers which are
wanted for this trial, where life itself is at stake?”
A long argument followed. Hay, while admitting that the President
might be generally subpœnaed as a witness, held that no need of a
subpœna had been shown, and that in any case a subpœna duces
tecum ought not to be issued. The chief-justice, after hearing
counsel on both sides, read June 13 an elaborate decision, which
settled the point in Burr’s favor.
“If upon any principle,” said he, “the President could be construed
to stand exempt from the general provisions of the Constitution, it
would be because his duties as chief magistrate demand his whole
time for national objects. But it is apparent that this demand is not
unremitting; and if it should exist at the time when his attendance on a
court is required, it would be sworn on the return of the subpœna, and
would rather constitute a reason for not obeying the process of the
court than a reason against its being issued.... It cannot be denied that
to issue a subpœna to a person filling the exalted station of the chief
magistrate is a duty which would be dispensed with much more
cheerfully than it would be performed; but if it be a duty, the court can
have no choice in the case.”
Nothing could irritate Jefferson more sensibly than this decision.
Only a few months before, in the trial of Smith and Ogden for
complicity with Miranda, he had ordered his Cabinet to disregard the
summons of the court. Luther Martin did not fail to fling reproach on
him for this act. “In New York, on the farcical trial of Ogden and
Smith, the officers of the government screened themselves from
attending, under the sanction of the President’s name. Perhaps the
same farce may be repeated here.” To be insulted by Martin and to
be ordered about the country by Marshall, exasperated Jefferson
beyond reason. He wrote letter after letter to Hay, filled with
resentment:—
“The leading feature of our Constitution is the independence of the
Legislature, Executive, and Judiciary of each other; and none are
more jealous of this than the Judiciary. But would the Executive be
independent of the Judiciary if he were subject to the commands of
the latter, and to imprisonment for disobedience; if the smaller courts
could bandy him from pillar to post, keep him constantly trudging from
north to south and east to west, and withdraw him entirely from his
executive duties?”[316]
The Judiciary never admitted the propriety of this reasoning,[317]

which was indeed no answer to Marshall’s argument. Unless the
President of the United States were raised above the rank of a
citizen, and endowed with more than royal prerogatives, no duty
could be more imperative upon him than that of lending every aid in
his power to the Judiciary in a case which involved the foundations
of civil society and government. No Judiciary could assume at the
outset that Executive duties would necessarily be interrupted by
breaking Jefferson’s long visits to Monticello in order to bring him for
a day to Richmond. Consciousness of this possible rejoinder
disturbed the President’s mind so much that he undertook to meet it
in advance:—
“The Judge says ‘it is apparent that the President’s duties as chief
magistrate do not demand his whole time, and are not unremitting.’ If
he alludes to our annual retirement from the seat of government
during the sickly season, he should be told that such arrangements
are made for carrying on the public business, at and between the
several stations we take, that it goes on as unremittingly there as if we
were at the seat of government.”
The district-attorney would hardly have dared tell this to the chief-
justice, for he must have felt that Marshall would treat it as an
admission. If arrangements could be made for carrying on the public
business at Monticello, why could they not be made for carrying it on
at Richmond?
Perhaps temper had more to do with Jefferson’s reasoning than
he imagined. Nothing could be better calculated to nettle a
philosophic President who believed the world, except within his own
domain, to be too much governed, than the charge that he himself
had played the despot and had trampled upon private rights; but that
such charges should be pressed with the coarseness of Luther
Martin, and should depend on the rulings of John Marshall, seemed
an intolerable outrage on the purity of Jefferson’s intentions. In such
cases an explosion of anger was a common form of relief. Even
President Washington was said to have sometimes dashed his hat
upon the ground, and the second President was famous for gusts of
temper.
“I have heard, indeed,” wrote Jefferson,[318] “that my predecessor
sometimes decided things against his Council by dashing and
trampling his wig on the floor. This only proves, what you and I knew,
that he had a better heart than head.”
Wigs were Federalist symbols of dignity and power. Republicans
wore no wigs, and could use no such resource in moments of rage;
but had President Jefferson worn the full paraphernalia of
Federalism,—wig and powder, cocked hat and small sword,—he
would never have shown his passion in acts of violence or in
physical excitement. His sensitiveness relieved itself in irritability and
complaints, in threats forgotten as soon as uttered, or in reflections
tinged with a color of philosophic thought. His first impulse was to
retaliate upon Martin and thrust him into the criminal dock. He wrote
to Hay,[319]—
“Shall we move to commit Luther Martin as particeps criminis with
Burr? Graybell will fix upon him misprision of treason at least. And at
any rate his evidence will put down this unprincipled and impudent
Federal bulldog, and add another proof that the most clamorous
defenders of Burr are all his accomplices.”
To the attorney-general he wrote in the same words:[320] “I think it
material to break down this bulldog of Federalism.” Jefferson’s
irritation rarely lasted long, and it evaporated with these words.
Martin railed unmolested.
No one fretted by personal feeling could cope with the
Rhadamanthine calm of John Marshall. The President could not
successfully strike back; he was fortunate if he should succeed in
warding off his enemies’ blows. In the midst of these controversies
and irritations, June 15, General Wilkinson arrived. The audiences
which in those days still crowded to the theatre and laughed at the
extraordinary wit and morality of the “Beggar’s Opera,” found none of
its possible allusions more amusing than the often-quoted line which
seemed meant to point at James Wilkinson. “That Jemmy Twitcher
should peach me, I own surprised me. ’Tis a plain proof that the
world is all alike, and that even our gang can no more trust one
another than other people.” Wilkinson had not a friend; even Daniel
Clark turned against him. To break him down, to prove by his own
confession that he was a pensioner of Spain and an accomplice with
Burr, was the known object of the defence; but the disgrace of
Wilkinson would also discredit the President and shake the
Administration which Wilkinson had saved. Whatever the
consequences might be, Jefferson could not allow Wilkinson to
suffer.
When Major Bruff, of the artillery, came from St. Louis to
Washington early in March, 1807, three months before Burr’s
indictment, he made bitter complaints to the Secretary of War,
accusing the general, under whose orders he served, of being a spy
of Spain and a traitor with Burr.[321] General Dearborn listened
without contradiction, and replied that there had been a time when
General Wilkinson did not stand well with the Executive, but his
energetic measures at New Orleans had regained him Executive
confidence, and the President would sustain him; that after the
actual bustle was over there might perhaps be an inquiry, but
meanwhile Wilkinson must and would be supported. Attorney-
General Rodney went even further.
“What would be the result,” he asked Bruff, “if all your charges
against General Wilkinson should be proven? Why, just what the
Federalists and the enemies of the present Administration wish,—it
would turn the indignation of the people from Burr on Wilkinson. Burr
would escape, and Wilkinson take his place.”
Rodney did not add, what was patent to all the world, that if
Wilkinson were to be convicted, President Jefferson himself, whose
negligence had left the Western country, in spite of a thousand
warnings, at the General’s mercy, could not be saved from the
roughest handling. The President and his Cabinet shrank from
Marshall’s subpœnas because under the examination of Wickham,
Botts, and Luther Martin they would be forced either to make
common cause with the General, or to admit their own negligence.
The whole case hung together. Disobedience of the subpœna was
necessary for the support of Wilkinson; support of Wilkinson was
more than ever necessary after refusing to obey the subpœna. The
President accepted his full share in the labor. No sooner did he hear
of Wilkinson’s arrival, at the moment when his own subpœna was
issued and defied, than he wrote a letter calculated to give the
General all the confidence he needed:[322]—
“Your enemies have filled the public ear with slanders and your
mind with trouble on that account. The establishment of their guilt will
let the world see what they ought to think of their clamors; it will
dissipate the doubts of those who doubted for want of knowledge, and
will place you on higher ground in the public estimate and public
confidence. No one is more sensible than myself of the injustice which
has been aimed at you. Accept, I pray you, my salutations and
assurances of respect and esteem.”
As an American citizen Jefferson had the right to respect and
esteem whom he pleased, and need not even excuse his
friendships. The world often loved and cherished its worst rogues,—
its Falstaffs, Macheaths, and Burrs,—and Jefferson was not exempt
from such weakness; but that his respect and esteem for Wilkinson
should require him to retain a pensioned Spanish spy and a
confederate with Burr and Dayton at the head of the United States
army during several years of extreme public danger, was a costly
consequence to the people whose confidence Jefferson claimed and
held. John Randolph saw this point clearly, and his bloodhound
instinct detected and followed, without hesitation, the trail that led to
the White House. Whether the chief-justice intended it or not, he
never struck Jefferson a blow so mischievous as when he directed
the clerk to place John Randolph as foreman of the grand jury.[323]
Randolph’s nature revolted from Wilkinson; and if the President and
the General could be gibbeted together, Randolph was the man to
do it.
Such was the situation when the General was sworn and sent
before the grand jury June 15, where his appearance, if his enemy
could be believed, was abject.
“Under examination all was confusion of language and of looks,”
wrote Randolph to Nicholson.[324] “Such a countenance never did I
behold; there was scarcely a variance of opinion among us as to his
guilt. Yet this miscreant is hugged to the bosom of Government while
Monroe is denounced.”
Randolph ardently wished to indict the General at the same time
with Burr; and while he strained every nerve to effect this purpose in
the grand-jury room, Burr and his counsel in the court-room moved
for an attachment against Wilkinson for attempting to obstruct the
free course of justice by oppression of witnesses. The district-
attorney resisted both attempts with all his authority; and June 24, to
the disappointment of his enemies, Wilkinson escaped.
“Yesterday,” wrote Randolph, June 25,[325] “the grand jury found
bills for treason and misdemeanor against Burr and Blennerhassett
una voce, and this day presented Jonathan Dayton, ex-senator, John
Smith of Ohio, Comfort Tyler, Israel Smith of New York, and Davis
Floyd of Indiana, for treason; but the mammoth of iniquity escaped,—
not that any man pretended to think him innocent, but upon certain
wire-drawn distinctions that I will not pester you with. Wilkinson is the
only man that I ever saw who was from the bark to the very core a
villain. The proof is unquestionable; but, my good friend, I cannot
enter upon it here. Suffice it to say that I have seen it, and that it is not
susceptible of misconstruction. Burr supported himself with great
fortitude. He was last night lodged in the common town jail (we have
no State prison except for convicts), where I daresay he slept sounder
than I did. Perhaps you never saw human nature in so degraded a
situation as in the person of Wilkinson before the grand jury; and yet
this man stands on the very summit and pinnacle of Executive favor,
while James Monroe is denounced.”
In the debates of the next session, when Randolph followed up
his attacks on Jefferson by trying to identify him with Wilkinson’s
misdeeds, a fuller account was given of the plea which saved
Wilkinson from presentment.
“There was before the grand jury,” said Randolph,[326] “a motion to
present General Wilkinson for misprision of treason. This motion was
overruled upon this ground,—that the treasonable (overt) act having
been alleged to be committed in the State of Ohio, and General
Wilkinson’s letter to the President of the United States having been
dated, though but a short time, prior to that act, this person had the
benefit of what lawyers would call a legal exception, or a fraud; but I
will inform the gentleman that I did not hear a single member of the
grand jury express any other opinion than that which I myself
expressed, of the moral, not of the legal, guilt of the party.”
In the evidence taken by a Congressional committee in 1811
regarding Wilkinson,[327] several members of the grand jury were
called to testify; and their accounts showed that the motion to
present General Wilkinson for misprision of treason was made by
Littleton W. Tazewell, and supported by Randolph and three or four
other members of the grand jury. One witness thought that the vote
stood 9 to 7.
Narrow though the loophole might be, Wilkinson squeezed
through it. The indictment of Burr was at length obtained. The
conspirators, who had at first vehemently averred that Wilkinson
would never dare to appear, and who if he should appear intended to
break him down before the grand jury, were reduced to hoping for
revenge when he should come on the witness-stand. Meanwhile,
June 26, Burr pleaded not guilty, and the court adjourned until
August 3, when the trial was to begin.
Thus far the President had carried everything before him. He had
produced his witnesses, had sustained Wilkinson, indicted Burr, and
defied Marshall’s subpœnas. This success could not be won without
rousing passion. Richmond was in the hands of the conspirators,
and they denounced Jefferson publicly and without mercy, as they
denounced Wilkinson and every other government officer.
“As I was crossing the court-house green,” said an eye-witness,
[328] “I heard a great noise of haranguing some distance off. Inquiring
what it was, I was told it was a great blackguard from Tennessee, one
Andrew Jackson, making a speech for Burr and damning Jefferson as
a persecutor.”
Hay wrote to the President, June 14:[329]—

“General Jackson, of Tennessee, has been here ever since the
22d, denouncing Wilkinson in the coarsest terms in every company.
The latter showed me a paper which at once explained the motive of
this incessant hostility. His own character depends on the prostration
of Wilkinson’s.”
This paper was no doubt Jackson’s secret denunciation to
Claiborne. Young Samuel Swartwout, who had some reason to
complain of the ridiculous figure he had been made to cut, jostled
Wilkinson in the street, and ended by posting him for a coward. John
Randolph echoed Luther Martin’s tirades against the President.
Randolph was in despair at Jefferson’s success.
“My friend,” he wrote to Nicholson,[330] “I am standing on the soil
of my native country divested of every right for which our fathers bled.
Politics have usurped the place of law, and the scenes of 1798 are
again revived. Men now see and hear, and feel and think, politically.
Maxims are now advanced and advocated which would almost have
staggered the effrontery of Bayard or the cooler impudence of
Chauncey Goodrich when we were first acquainted.”
All this work was but skirmishing. The true struggle had still to
come. So long as the President dealt only with grand jurors and
indictments, he could hardly fail to succeed; but the case was
different when he dealt directly with Chief-Justice Marshall and with
the stubborn words of the Constitution, that “no person shall be
convicted of treason unless on the testimony of two witnesses to the
same overt act, or on confession in open court.” The district-attorney
was ready with a mass of evidence, but the chief-justice alone could
say whether a syllable of this evidence should be admitted; and
hitherto the chief-justice had by no means shown a bias toward the
government. Hay was convinced that Marshall meant to protect Burr,
and he wrote to the President on the subject:[331]—
“The bias of Judge Marshall is as obvious as if it was stamped
upon his forehead. I may do him injustice, but I do not believe that I
am, when I say that he is endeavoring to work himself up to a state of
f[irmness?] which will enable [him] to aid Burr throughout the trial
without appearing to be conscious of doing wrong. He seems to think
that his reputation is irretrievably gone, and that he has now nothing to
lose by doing as he pleases. His concern for Mr. Burr is wonderful. He
told me many years ago, when Burr was rising in the estimation of the
Republican party, that he was as profligate in principle as he was
desperate in fortune. I remember his words; they astonished me. Yet
when the grand jury brought in their bill, the chief-justice gazed at him
for a long time, without appearing conscious that he was doing so,
with an expression of sympathy and sorrow as strong as the human
countenance can exhibit without palpable emotion.”
August 3 the court opened its session and the trial began. Not
until August 17 was the jury impanelled; and meanwhile a new figure
appeared at Burr’s side. Blennerhassett arrived in Richmond August
4, and was brought before the court August 10. He began at once a
private journal of the trial, which remained the only record of what
passed among the conspirators. As each witness appeared,
Blennerhassett told the gossip regarding him.
“The once redoubted Eaton,”[332] who was put first upon the
stand, “has dwindled down in the eyes of this sarcastic town into a
ridiculous mountebank, strutting about the streets under a tremendous
hat, with a Turkish sash over colored clothes, when he is not tippling
in the taverns, where he offers up with his libations the bitter effusions
of his sorrows.”
“Old sly-boots” Dayton,[333] he said, was lurking about corners.

Wilkinson[334] “exhibited the manner of a sergeant under a court-
martial rather than the demeanor of an accusing officer confronted
with his culprit. His perplexity and derangement, even upon his direct
examination, has placed beyond all doubt ‘his honor as a soldier and
his fidelity as a citizen.’”
These comments were sharp, yet the pages of Blennerhassett’s
diary were not so severe upon any of the witnesses for the

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LEARNING OBJECTIVES: FOFM.BRIG.17.07.02 - Key Characteristics of Bonds

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HAS VARIABLES: False

LEARNING OBJECTIVES: FOFM.BRIG.17.07.02 - Key Characteristics of Bonds

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LOCAL STANDARDS: United States - OH - Default City - Tier 2: - Capital structure

TOPICS: Bond prices and returns

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23. Which of the following statements is CORRECT?

KEYWORDS: Bloom's: Knowledge

T-bond = 7.72% A = 9.64%

LEARNING OBJECTIVES: FOFM.BRIG.17.07.02 - Key Characteristics of Bonds

27. Which of the following statements is CORRECT?

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d. The rate should be over 7%.

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31. Which of the following statements is CORRECT?

OTHER: Multiple Choice: Conceptual

33. Which of the following statements is CORRECT?

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STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds

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e. A 10-year bond with a 10% coupon.

d. A 10-year bond with a 12% coupon.

43. Which of the following statements is CORRECT?

44. Which of the following statements is CORRECT?

45. Which of the following statements is CORRECT?

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46. Which of the following statements is CORRECT?

47. Which of the following statements is CORRECT?

TOPICS: Bonds and default risk

48. Which of the following statements is CORRECT?

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.03 - BUSPROG: Analytic

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52. Which of the following statements is CORRECT?

53. Which of the following statements is CORRECT?

because it would have a shorter expected life.

54. Which of the following statements is CORRECT?

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KEYWORDS: Bloom's: Application

58. Which of the following statements is CORRECT?

59. Which of the following statements is CORRECT?

60. Which of the following statements is CORRECT?

61. Which of the following statements is CORRECT?

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