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1. If money is invested for 20 years at 12% interest, compounded monthly, the money is really being invested for 240 month periods, during which 1% interest is received each period. a. True b. False 2. Rent is a good example of an ordinary annuity. a. True b. False 3. The more frequent the compounding periods in a year, the lower the future value. a True b. False 4. Foreign bonds are bonds exclusively issued by foreign governments. a. True b. False 5. Bonds work so well because they enable lenders to raise more funds. a. True b. False 6. The present value is negatively related to the interest rate. a. True b. False 7. A coupon payment is defined as a percentage of the face value. a. True b. False 8. As the compound interest rate increases, the present value of future cash flows increases. a. True b. False 9. Corporate bonds bear a higher default risk compared to government bonds. a. True b. False 10. The higher the yield to maturity is, the higher the price of the bond today. a True b. False
True. In monthly compounding, interest payment is made every month on the principal & accrued interest. Since there would be interest paid on accrued interest. It can be expressed on a annual basis as effective interest rate.
Effective Interest rate = (1 + Nominal rate / compounding frequency)compounding frequency
2. True. Rent either paid monthly or annually is a fixed amount of payment done due the tenure of the agreement.
3. False. The more the compounding periods, there will be more interest paid on accrued interest. Thus increasing the future value. It can be expressed as:-
Future Value = Present value (1 + interest rate / compounding frequency)compounding frequency * no of Period
4. False. Foreign bonds can be issued by sovereign and corporations in financial markets outside their domestic markets Eg Yankee bonds issued on NYSE
5.False. Bonds have negative covenants in their indenture which prohibits raising more funds. The current bond holders have legal recourse against the issuer.
6.False Bonds are inversely related to interest rates. As interest rates increase Bond prices decrease and vice versa. It is expressed as
Bond price = 
Coupons / ( 1+ Interest rate)period + Face Value / ( 1+ Interest rate)period
7.True. Coupon payment is paid percentage to Face value. It is expressed as a annual interest rate which is paid annually / semi annually et
8. False.A compounding interest rate increases the present value of future cash flows decreases, since the future cash flows are discounted at a higher interest rate.
Present Value = Cashflow / ( 1+ Interest rate)period +....+ Cashflow / ( 1+ Interest rate)period
9 True. Corporations bear more credit risk that sovereigns since they cannot print money to payback debt or raise taxes to payback debt.
10 False The higher the yield to maturity the bond price since the future cash flows will be discounted at a higher interest rate. It is expressed as :-
Bond price = Coupons / ( 1+ Interest rate)period + Face Value / ( 1+ Interest rate)period
