Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

Calculate the holding period return for a $1,000 face value bond with a $60 annual coupon purchased for $970.00 and sold three years later for $1,060.00.

When the price of a bond equals the face value the:

A $1,000 face value bond, with one year to maturity that sells for $950 and has a $40 annual coupon has a:

In mid-2004 there was speculation that the Federal Reserve would be raising interest rates before the end of the year. How would this news affect the bond market and why?

As general business conditions deteriorate, all other factors constant:

Consider the bonds below. Which is subject to the greatest interest-rate risk?

When expected inflation increases, for any given nominal interest rate the:

Consider a one-year corporate bond that has a 20% probability of default. The payoff on the bond is $2,000 if the corporation does not default. The interest rate is 10%. If buyers of this bond are risk-neutral, this bond will sell for:

The current yield of a bond:

A 30-year Treasury bond as a face value of $1,000, price of $1,200 with a $50 coupon payment. Assume the price of this bond decreases to $1,100 over the next year. The one-year holding period return is equal to:

When expected inflation increases, for any given nominal interest rate the:

Explain why holding period return, as an economic measure, does not have the same significance as current yield or yield to maturity.

If the purchase price of a bond exceeds the face value, the yield to maturity:

As general business conditions improve, all other factors constant the:

Most home mortgages are good examples of:

The demand for U.S. government bonds is high relative to other bond issues because:

An increase in expected inflation for any given nominal interest rate will cause:

When the price of a bond is below the face value, the yield to maturity:

Explain why two countries with the same average rate of inflation may not present the same inflation risk for holders of those countries' bonds?

Explain why the bid-ask spread on most municipal bonds would be greater than the spread on U.S. Treasury bonds.