Exam 8: Bond Valuation and Risk

Assume a bond with a $1,000 par value and an 11 percent coupon rate, two years remaining to maturity, and a 10 percent yield to maturity. The modified duration of this bond is

(Multiple Choice)

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Question 41

As interest rates increase, prices of short-term bonds will decline by a greater degree than prices of long-term bonds.

(True/False)

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Question 42

When two securities have the same expected cash flows, the value of the high-risk security will be higher than the value of the low-risk security.

(True/False)

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Question 43

Stephanie would like to purchase a bond that has a par value of $1,000, pays $100 at the end of each year in coupon payments, and has three years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 12 percent, how much will Stephanie pay for the bond?

(Multiple Choice)

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Question 44

Morgan would like to purchase a bond that has a par value of $1,000, pays $80 at the end of each year in coupon payments, and has 10 years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 6 percent, how much will Morgan pay for the bond?

(Multiple Choice)

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Question 45

The process by which higher credit risk in one country is transmitted to another country is known as

(Multiple Choice)

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Question 46

The market value of long-term bonds is sensitive to interest rate movements; as interest rates fall, the market value of long-term bonds .

(Multiple Choice)

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Question 47

Holding other factors constant, a higher budget deficit leads to interest rates, and higher inflationary expectations lead to _ interest rates.

(Multiple Choice)

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Question 48

Which of the following bonds is most susceptible to interest rate risk from an investor's perspective?

(Multiple Choice)

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Question 49

An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return and therefore causes bond prices to increase.

(True/False)

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Question 50

Sioux Financial Corp. has forecasted its bond portfolio value for one year ahead to be $105 million. In one year, it expects to receive $10,000,000 in coupon payments. The bond portfolio today is worth $101 million. What is the forecasted return of this bond portfolio?

(Multiple Choice)

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Question 51

Bond price elasticity is the percentage change in bond prices divided by the percentage change in the required rate of return.

(True/False)

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Question 52

If bond portfolio managers expect interest rates to increase in the future, they would likely their holdings of bonds now, which could cause the prices of bonds to as a result of their actions.

(Multiple Choice)

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Question 53

A zero-coupon bond makes no coupon payments.

(True/False)

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Question 54

Duration is a measure of the life of a bond on a present value basis.

(True/False)

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Question 55

Assume a bond with a $1,000 par value and a 7 percent coupon rate, three years remaining to maturity, and a 9 percent yield to maturity. The duration of this bond is ____ years.

(Multiple Choice)

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Question 56

The valuation of bonds is generally perceived to be ____ the valuation of equity securities.

(Multiple Choice)

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Question 57

To determine the present value of a bond that pays semiannual interest, which of the following adjustments should not be made to compute the price of the bond?

(Multiple Choice)

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Question 58

Which of the following is most likely to cause a decrease in bond prices?

(Multiple Choice)

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Question 59

A $1,000 par value bond, paying $50 semiannually, with an 8 percent yield to maturity and five years remaining to maturity should sell for

(Multiple Choice)

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Question 60

Showing 41 - 60 of 79

Exam 8: Bond Valuation and Risk

Assume a bond with a $1,000 par value and an 11 percent coupon rate, two years remaining to maturity, and a 10 percent yield to maturity. The modified duration of this bond is

As interest rates increase, prices of short-term bonds will decline by a greater degree than prices of long-term bonds. ​

When two securities have the same expected cash flows, the value of the high-risk security will be higher than the value of the low-risk security.

Morgan would like to purchase a bond that has a par value of $1,000, pays $80 at the end of each year in coupon payments, and has 10 years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 6 percent, how much will Morgan pay for the bond?

The process by which higher credit risk in one country is transmitted to another country is known as

The market value of long-term bonds is ____ sensitive to interest rate movements; as interest rates fall, the market value of long-term bonds ____.

Holding other factors constant, a higher budget deficit leads to ______ interest rates, and higher inflationary expectations lead to _______ interest rates.

Which of the following bonds is most susceptible to interest rate risk from an investor's perspective?

An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return and therefore causes bond prices to increase. ​

Sioux Financial Corp. has forecasted its bond portfolio value for one year ahead to be $105 million. In one year, it expects to receive $10,000,000 in coupon payments. The bond portfolio today is worth $101 million. What is the forecasted return of this bond portfolio?

Bond price elasticity is the percentage change in bond prices divided by the percentage change in the required rate of return. ​

If bond portfolio managers expect interest rates to increase in the future, they would likely ____ their holdings of bonds now, which could cause the prices of bonds to ____ as a result of their actions.

A zero-coupon bond makes no coupon payments.

Duration is a measure of the life of a bond on a present value basis. ​

Assume a bond with a $1,000 par value and a 7 percent coupon rate, three years remaining to maturity, and a 9 percent yield to maturity. The duration of this bond is ____ years.

The valuation of bonds is generally perceived to be ____ the valuation of equity securities.

To determine the present value of a bond that pays semiannual interest, which of the following adjustments should not be made to compute the price of the bond?

Which of the following is most likely to cause a decrease in bond prices?

A $1,000 par value bond, paying $50 semiannually, with an 8 percent yield to maturity and five years remaining to maturity should sell for

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

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As interest rates increase, prices of short-term bonds will decline by a greater degree than prices of long-term bonds.

The market value of long-term bonds is sensitive to interest rate movements; as interest rates fall, the market value of long-term bonds .

Holding other factors constant, a higher budget deficit leads to interest rates, and higher inflationary expectations lead to _ interest rates.

An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return and therefore causes bond prices to increase.

Bond price elasticity is the percentage change in bond prices divided by the percentage change in the required rate of return.

If bond portfolio managers expect interest rates to increase in the future, they would likely their holdings of bonds now, which could cause the prices of bonds to as a result of their actions.

Duration is a measure of the life of a bond on a present value basis.