Exam 17: Bond Yields and Prices

Which of the following is included in the "realized compound yield"?

Jenna owns a 7% bond that has an 8.2% yield to maturity and 10 years to maturity. If the yield to maturity on the bond increases to 9.2%, how will the bond change in value?

Reinvestment risk represents the possibility that future payments cannot be reinvested at the assumed rate.

The relation between bond prices and interest rates is:

The XYZ Corp. issued 12% bonds several years ago at $975. The bonds currently have an 8.5% yield to maturity and have eight years to maturity. What is the current price of the bonds?

Assume an investor is considering purchasing an 8 percent semiannual bond with 8 years remaining to maturity when market rates are 6%. The bond's value is closest to:

When interest rates increase, the price of an ordinary bond will always fall; however, the price of a stock may increase or decrease. Explain why.

Bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year. n c_t FV P = $\Sigma$ ------------ + ------------ t=1 (1 + ytm)^t (1 + ytm)ⁿ where P = the current market price of the bond n = the number of semiannual periods to maturity ytm = the semiannual yield to maturity to be solved for c = the semiannual coupon in dollars FV = the face value (maturity or par value) which in this discussion is always $1,000 What does this formula imply about the term structure of interest rates? How would real-world bond investors price bonds to correct for this?

In finding a bond's value, the rate used to discount the bond's future cash flows is:

Assume an investor buys an 8 percent, semi-annual, 10-year bond at par. He sells it two years later after market interest rates have decreased to 6 percent. The investor's capital gain is closest to:

What happens to the price of bonds if interest rates go up?

If the yield curve is downward sloping, investors expect interest rates to:

A 10% Ontel bond has 5 years to maturity and is selling for $1,106. What is the bond's yield to maturity (YTM)?

If interest rates rise, then price risk and reinvestment risk decline.

In which case will an investor not receive the promised yield to maturity?

Relative to a decrease in interest rates, an increase in rates of the same size will produce:

What is meant by the real risk-free rate of interest? It is the:

The observed YTM on a 5-year, zero-coupon T-bond is 4.1%, whereas a 4-year, zero-coupon T-bond is yielding 3.8%. What is the implied one-year forward rate four years from today?

Which of the following bonds will be most sensitive to changes in market interest rates?