Question 1

If an investor buys a high coupon bond,and rates then fall,the investor has "locked up" that high yield as a realized yield.

Accepted Answer

A) True 
 B)False

Question 2

If you expected interest rates to fall,you would prefer to own bonds with

Accepted Answer

A)  short maturities and low coupons. 
B)  long maturities and high coupons . 
C)  long maturities and low coupons. 
D)  short maturities and high coupons. 
E)  none of the above. 
A)  short maturities and low coupons. 
B)  long maturities and high coupons . 
C)  long maturities and low coupons. 
D)  short maturities and high coupons. 
E)  none of the above.

Question 3

The annual interest paid on a bond relative to its prevailing market price is called its ____.

Accepted Answer

A)  Promised yield 
B)  Yield to maturity 
C)  Coupon rate 
D)  Effective yield 
E)  Current yield 
A)  Promised yield 
B)  Yield to maturity 
C)  Coupon rate 
D)  Effective yield 
E)  Current yield

Question 4

What is the current price of a zero coupon bond with a 6% yield to maturity that matures in 15 years?

Accepted Answer

A)  $4.17 
B)  $41.27 
C)  $417.27 
D)  $4,172.00 
E)  None of the above 
A)  $4.17 
B)  $41.27 
C)  $417.27 
D)  $4,172.00 
E)  None of the above

Question 5

The major problem facing a bond analyst is the ability to forecast the basic interest rate level since yield spreads are generally inconsequential.

Accepted Answer

A) True 
 B)False

Question 6

There are four major factors accounting for the existence of yield differentials.Which of the following is not a factor?

Accepted Answer

A)  Segments 
B)  Sectors 
C)  Indentures 
D)  Coupons 
E)  Maturities 
A)  Segments 
B)  Sectors 
C)  Indentures 
D)  Coupons 
E)  Maturities

Question 7

A 12-year,8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years.If interest rates decline by 50 basis points,what will be the percent change in price for this bond?

Accepted Answer

A)  +4.48% 
B)  +4.61% 
C)  +8.48% 
D)  +8.96% 
E)  +17.92% 
A)  +4.48% 
B)  +4.61% 
C)  +8.48% 
D)  +8.96% 
E)  +17.92%

Question 8

Consider a bond with a duration of 8 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points.What is the percentage change in the price of the bond?

Accepted Answer

A)  3.85% 
B)  3.45% 
C)  -4.02% 
D)  -3.45% 
E)  -3.85% 
A)  3.85% 
B)  3.45% 
C)  -4.02% 
D)  -3.45% 
E)  -3.85%

Question 9

Exhibit 18.3
Use the Information Below for the Following Problem(S)
A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually.
-Refer to Exhibit 18.3.Calculate the modified duration for the bond.

Accepted Answer

A)  3.51 years 
B)  3.61 years 
C)  3.72 years 
D)  4.38 years 
E)  7.44 years 
A)  3.51 years 
B)  3.61 years 
C)  3.72 years 
D)  4.38 years 
E)  7.44 years

Question 10

Consider a zero coupon bond that has a current price of $436.19 and matures in 10 years.What is its yield to maturity?

Accepted Answer

A)  0.86% 
B)  8.65% 
C)  8.00% 
D)  58.80% 
E)  6.564% 
A)  0.86% 
B)  8.65% 
C)  8.00% 
D)  58.80% 
E)  6.564%

Question 11

The term structure of interest rates is a static function that relates the

Accepted Answer

A)  Term to call and the yield to maturity. 
B)  Term to maturity and the yield to maturity. 
C)  Term to call and the yield to call. 
D)  Term to maturity and the coupon rate. 
E)  Term to maturity and the current yield. 
A)  Term to call and the yield to maturity. 
B)  Term to maturity and the yield to maturity. 
C)  Term to call and the yield to call. 
D)  Term to maturity and the coupon rate. 
E)  Term to maturity and the current yield.

Question 12

The promised yield to maturity calculation assumes that

Accepted Answer

A)  All coupon interest payments are reinvested at the current market interest rate for the bond. 
B)  All coupon interest payments are reinvested at the coupon interest rate for the bond. 
C)  All coupon interest payments are reinvested at short term money market interest rates. 
D)  All coupon interest payments are not reinvested. 
E)  None of the above 
A)  All coupon interest payments are reinvested at the current market interest rate for the bond. 
B)  All coupon interest payments are reinvested at the coupon interest rate for the bond. 
C)  All coupon interest payments are reinvested at short term money market interest rates. 
D)  All coupon interest payments are not reinvested. 
E)  None of the above

Question 13

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

Accepted Answer

A) True 
 B)False

Question 14

Because you expect market interest rates to decline during the next four months,if you were offered two bonds with equal duration,you would select the one with the higher measure of convexity.

Accepted Answer

A) True 
 B)False

Question 15

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.Calculate the modified duration for the bond.

Accepted Answer

A)  4.19 years 
B)  4.36 years 
C)  8.72 years 
D)  8.38 years 
E)  9.52 years 
A)  4.19 years 
B)  4.36 years 
C)  8.72 years 
D)  8.38 years 
E)  9.52 years

Question 16

If you expected interest rates to fall,you would prefer to own bonds with

Accepted Answer

A)  long durations and high convexity. 
B)  long durations and low convexity. 
C)  short durations and high convexity. 
D)  short durations and low convexity. 
E)  none of the above. 
A)  long durations and high convexity. 
B)  long durations and low convexity. 
C)  short durations and high convexity. 
D)  short durations and low convexity. 
E)  none of the above.

Question 17

Exhibit 18.2
Use the Information Below for the Following Problem(S)
Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The bonds have a 7% coupon rate. Interest is paid annually and the required rate of return is 6 percent for these bonds.
-Refer to Exhibit 18.2.What is the Macaulay duration of the Talmart corporate bonds?

Accepted Answer

A)  3.43 
B)  3.64 
C)  3.76 
D)  3.85 
E)  4.11 
A)  3.43 
B)  3.64 
C)  3.76 
D)  3.85 
E)  4.11

Question 18

The three major theories explaining the term structure of interest rates are the expectations hypothesis,the liquidity differential hypothesis,and the segmented quality hypothesis.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 18.3
Use the Information Below for the Following Problem(S)
A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually.
-Refer to Exhibit 18.3.Calculate the current price of the bond.

Accepted Answer

A)  $964.90 
B)  $965.35 
C)  $981.41 
D)  $1035.45 
E)  $1035.85 
A)  $964.90 
B)  $965.35 
C)  $981.41 
D)  $1035.45 
E)  $1035.85

Question 20

The price-yield relationship for a bond will become more convex

Accepted Answer

A)  For a low coupon bond. 
B)  For a high coupon bond. 
C)  For a long maturity bond. 
D)  b and c. 
E)  a and c. 
A)  For a low coupon bond. 
B)  For a high coupon bond. 
C)  For a long maturity bond. 
D)  b and c. 
E)  a and c.

Exam 18: The Analysis and Valuation of Bonds

If an investor buys a high coupon bond,and rates then fall,the investor has "locked up" that high yield as a realized yield.

If you expected interest rates to fall,you would prefer to own bonds with

The annual interest paid on a bond relative to its prevailing market price is called its ____.

What is the current price of a zero coupon bond with a 6% yield to maturity that matures in 15 years?

The major problem facing a bond analyst is the ability to forecast the basic interest rate level since yield spreads are generally inconsequential.

There are four major factors accounting for the existence of yield differentials.Which of the following is not a factor?

A 12-year,8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years.If interest rates decline by 50 basis points,what will be the percent change in price for this bond?

Consider a bond with a duration of 8 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points.What is the percentage change in the price of the bond?

Exhibit 18.3 Use the Information Below for the Following Problem(S) A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually. -Refer to Exhibit 18.3.Calculate the modified duration for the bond.

Consider a zero coupon bond that has a current price of $436.19 and matures in 10 years.What is its yield to maturity?

The term structure of interest rates is a static function that relates the

The promised yield to maturity calculation assumes that

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

Because you expect market interest rates to decline during the next four months,if you were offered two bonds with equal duration,you would select the one with the higher measure of convexity.

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.Calculate the modified duration for the bond.

If you expected interest rates to fall,you would prefer to own bonds with

The three major theories explaining the term structure of interest rates are the expectations hypothesis,the liquidity differential hypothesis,and the segmented quality hypothesis.

Exhibit 18.3 Use the Information Below for the Following Problem(S) A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually. -Refer to Exhibit 18.3.Calculate the current price of the bond.

The price-yield relationship for a bond will become more convex

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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