Question 1

If the coupon payments are not reinvested during the life of the issue then the

Accepted Answer

A)  Promised yield is greater than realized yield. 
B)  Promised yield is less than realized yield. 
C)  Nominal yield declines. 
D)  Nominal yield is greater than promised yield. 
E)  Current yield equals the yield to maturity. 
A)  Promised yield is greater than realized yield. 
B)  Promised yield is less than realized yield. 
C)  Nominal yield declines. 
D)  Nominal yield is greater than promised yield. 
E)  Current yield equals the yield to maturity.

Question 2

Convexity is a desirable feature of bonds because.

Accepted Answer

A)  As interest rates decline, the price of a low convexity bond decreases at a decreasing rate. 
B)  As interest rates decline, the price of a high convexity bond decreases at an increasing rate. 
C)  As interest rates decline, the price of a low convexity bond increases at a decreasing rate. 
D)  As interest rates decline, the price of a high convexity bond increases at an increasing rate. 
E)  As interest rates decline, the price of a high convexity bond decreases at a decreasing rate. 
A)  As interest rates decline, the price of a low convexity bond decreases at a decreasing rate. 
B)  As interest rates decline, the price of a high convexity bond decreases at an increasing rate. 
C)  As interest rates decline, the price of a low convexity bond increases at a decreasing rate. 
D)  As interest rates decline, the price of a high convexity bond increases at an increasing rate. 
E)  As interest rates decline, the price of a high convexity bond decreases at a decreasing rate.

Question 3

A 15-year bond has a $1,000 par value bond,a 4% coupon and a yield to maturity of 3.3%.Interest is paid annually.The bond's current yield is

Accepted Answer

A)  3.7% 
B)  4.0% 
C)  3.3% 
D)  7.3% 
E)  None of the above 
A)  3.7% 
B)  4.0% 
C)  3.3% 
D)  7.3% 
E)  None of the above

Question 4

Which of the following is not a risk premium component of bonds?

Accepted Answer

A)  Bond quality 
B)  Term to maturity of the bond 
C)  Indenture provisions 
D)  Foreign bond risk 
E)  All of the above are risk premium components of bonds. 
A)  Bond quality 
B)  Term to maturity of the bond 
C)  Indenture provisions 
D)  Foreign bond risk 
E)  All of the above are risk premium components of bonds.

Question 5

Suppose the current 6 year rate is 9% and the current 5 year rate is 7%.What is the one year forward rate for five years?

Accepted Answer

A)  19.57% 
B)  18.62% 
C)  15.80% 
D)  14.65% 
E)  12.67% 
A)  19.57% 
B)  18.62% 
C)  15.80% 
D)  14.65% 
E)  12.67%

Question 6

Exhibit 18.1
Use the Information Below for the Following Problem(S)
A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually.
-Refer to Exhibit 18.1.Estimate the percentage price change for this 5-year $1,000 par value bond,with a 6% coupon,if the yield rises from 8% to 8.5%.Interest is paid semiannually.

Accepted Answer

A)  2.1% 
B)  -2.1% 
C)  4.4% 
D)  -4.4% 
E)  None of the above 
A)  2.1% 
B)  -2.1% 
C)  4.4% 
D)  -4.4% 
E)  None of the above

Question 7

An interest rate is the price of loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

Suppose you have a 10%,20 year bond traded at $1,120.If it is callable in 5 years at $1,150,what is the bond's approximate yield to call? Interest is paid quarterly.

Accepted Answer

A)  7.78% 
B)  8.00% 
C)  9.40% 
D)  9.36% 
E)  9.72% 
A)  7.78% 
B)  8.00% 
C)  9.40% 
D)  9.36% 
E)  9.72%

Question 9

If the holding period is equal to the term to maturity for a corporate bond the rate of discount represents the

Accepted Answer

A)  Coupon yield. 
B)  Effective yield. 
C)  Yield to call. 
D)  Yield to maturity. 
E)  Reinvestment rate. 
A)  Coupon yield. 
B)  Effective yield. 
C)  Yield to call. 
D)  Yield to maturity. 
E)  Reinvestment rate.

Question 10

Assume that you purchase a 3-year $1,000 par value bond,with a 8% coupon,and a yield of 10%.After you purchase the bond,one-year interest rates are as follow,year 1 = 10%,year 2 = 8%,year 3 = 6% (these are the reinvestment rates).Calculate the realized horizon yield if you hold the bond to maturity.Interest is paid annually.

Accepted Answer

A)  8.37% 
B)  7.28% 
C)  9.76% 
D)  10.67% 
E)  14.0% 
A)  8.37% 
B)  7.28% 
C)  9.76% 
D)  10.67% 
E)  14.0%

Question 11

According to the expectations hypothesis a rising yield curve indicates that investors expect

Accepted Answer

A)  future short term rates to fall 
B)  future short term rates to rise 
C)  future long term rates to rise 
D)  future long term rates to fall 
E)  none of the above 
A)  future short term rates to fall 
B)  future short term rates to rise 
C)  future long term rates to rise 
D)  future long term rates to fall 
E)  none of the above

Question 12

The expectations hypothesis is also known as both the institutional theory and the hedging pressure theory.

Accepted Answer

A) True 
 B)False

Question 13

Consider a 10%,15 year bond that pays interest annually quarterly,and its current price is $1060.What is the promised yield to maturity?

Accepted Answer

A)  10.23% 
B)  18.45% 
C)  2.31% 
D)  17.77% 
E)  9.26% 
A)  10.23% 
B)  18.45% 
C)  2.31% 
D)  17.77% 
E)  9.26%

Question 14

Calculate the duration of a 6 percent,$1,000 par bond maturing in three years if the yield to maturity is 10 percent and interest is paid semiannually.

Accepted Answer

A)  1.35 years 
B)  1.78 years 
C)  2.50 years 
D)  2.78 years 
E)  2.95 years 
A)  1.35 years 
B)  1.78 years 
C)  2.50 years 
D)  2.78 years 
E)  2.95 years

Question 15

Reinvestment risk is greatest for bonds that have

Accepted Answer

A)  Short maturities and low coupon rates 
B)  Long maturities and high coupon rates 
C)  Short maturities and high coupon rates 
D)  Long maturities and low coupon rates 
E)  None of the above 
A)  Short maturities and low coupon rates 
B)  Long maturities and high coupon rates 
C)  Short maturities and high coupon rates 
D)  Long maturities and low coupon rates 
E)  None of the above

Question 16

For a given change in yield bond price volatility is directly related to duration.

Accepted Answer

A) True 
 B)False

Question 17

According to the segmented market hypothesis,yields for a particular maturity segment depend on supply and demand within the maturity segment.

Accepted Answer

A) True 
 B)False

Question 18

The price-yield curve is a concave curve representing the relationship of bond prices and yields.

Accepted Answer

A) True 
 B)False

Question 19

For a given change in yield bond price volatility is inversely related to term to maturity.

Accepted Answer

A) True 
 B)False

Question 20

The convexity of a bond is affected as follows:

Accepted Answer

A)  Positively with maturity. 
B)  Positively with yield. 
C)  Inversely with coupon. 
D)  Choices a and b 
E)  Choices a and c 
A)  Positively with maturity. 
B)  Positively with yield. 
C)  Inversely with coupon. 
D)  Choices a and b 
E)  Choices a and c

Exam 18: The Analysis and Valuation of Bonds

If the coupon payments are not reinvested during the life of the issue then the

Convexity is a desirable feature of bonds because.

A 15-year bond has a $1,000 par value bond,a 4% coupon and a yield to maturity of 3.3%.Interest is paid annually.The bond's current yield is

Which of the following is not a risk premium component of bonds?

Suppose the current 6 year rate is 9% and the current 5 year rate is 7%.What is the one year forward rate for five years?

An interest rate is the price of loanable funds.

Suppose you have a 10%,20 year bond traded at $1,120.If it is callable in 5 years at $1,150,what is the bond's approximate yield to call? Interest is paid quarterly.

If the holding period is equal to the term to maturity for a corporate bond the rate of discount represents the

According to the expectations hypothesis a rising yield curve indicates that investors expect

The expectations hypothesis is also known as both the institutional theory and the hedging pressure theory.

Consider a 10%,15 year bond that pays interest annually quarterly,and its current price is $1060.What is the promised yield to maturity?

Calculate the duration of a 6 percent,$1,000 par bond maturing in three years if the yield to maturity is 10 percent and interest is paid semiannually.

Reinvestment risk is greatest for bonds that have

For a given change in yield bond price volatility is directly related to duration.

According to the segmented market hypothesis,yields for a particular maturity segment depend on supply and demand within the maturity segment.

The price-yield curve is a concave curve representing the relationship of bond prices and yields.

For a given change in yield bond price volatility is inversely related to term to maturity.

The convexity of a bond is affected as follows:

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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