Question 1

Yield spreads vary inversely with the: ______________________________.

Accepted Answer

The answer of Yield spreads vary inversely with the: ______________________________....

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Based on which of the following term structure theories are forward rates most useful?

Accepted Answer

A) Expectations theory 
B) Liquidity preference theory 
C) Preferred habitat theory 
D) Market segmentation theory 
A) Expectations theory 
B) Liquidity preference theory 
C) Preferred habitat theory 
D) Market segmentation theory

Question 4

If a bond has a coupon rate that is greater than the bond's YTM,the bond:

Accepted Answer

A) will sell at a premium. 
B) will sell at par. 
C) will sell at a discount. 
D) will not be called. 
A) will sell at a premium. 
B) will sell at par. 
C) will sell at a discount. 
D) will not be called.

Question 5

Both stocks and bonds are valued by summing the discounted future flows of interest (or dividends)and the repayment of principal (or sale of the stock).

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is most accurate? The real risk-free rate of interest is the:

Accepted Answer

A) rate quoted for the shortest term federal government securities. 
B) rate quoted for the longest term federal government securities. 
C) the rate on federal government securities adjusted to remove the effects of inflation. 
D) the rate on federal government securities adjusted to remove the effects of taxes. 
A) rate quoted for the shortest term federal government securities. 
B) rate quoted for the longest term federal government securities. 
C) the rate on federal government securities adjusted to remove the effects of inflation. 
D) the rate on federal government securities adjusted to remove the effects of taxes.

Question 7

If the yield curve has a steep upward slope,investors expect:

Accepted Answer

A) interest rates to increase and inflation rates to decrease. 
B) interest rates to decrease and inflation rates to increase. 
C) interest rates to increase and inflation rates to increase. 
D) interest rates to decrease and inflation rates to decrease. 
A) interest rates to increase and inflation rates to decrease. 
B) interest rates to decrease and inflation rates to increase. 
C) interest rates to increase and inflation rates to increase. 
D) interest rates to decrease and inflation rates to decrease.

Question 8

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

Accepted Answer

A) The price of bonds goes up. 
B) The price of bonds stays the same. 
C) The price of bonds goes down. 
D) The direction of price change depends on the shape of the yield curve. 
A) The price of bonds goes up. 
B) The price of bonds stays the same. 
C) The price of bonds goes down. 
D) The direction of price change depends on the shape of the yield curve.

Question 9

A financial crisis or an accounting scandal can just as easily cause yield spreads to widen as weak earnings at a company.

Accepted Answer

A) True 
 B)False

Question 10

Risk premiums,or yield spreads,refer to the issue characteristics of bonds.They are the result of which 7 factors:1)______ 2)______3)______4)______5)______6)_____7)_____

Accepted Answer

quality/risk of default,time-t

Question 11

Bond traders use the term "basis point" to mean one percentage point in interest rate.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a situation in which an investor will not receive the promised yield to maturity?

Accepted Answer

A) The investor holds the bond until maturity and reinvests coupon payments at the original yield to maturity. 
B) Interest rates do not change during the life of the bond. 
C) The issuer calls the bond prior to original maturity. 
D) The realized compound yield equals the promised yield to maturity. 
A) The investor holds the bond until maturity and reinvests coupon payments at the original yield to maturity. 
B) Interest rates do not change during the life of the bond. 
C) The issuer calls the bond prior to original maturity. 
D) The realized compound yield equals the promised yield to maturity.

Question 13

As interest rates increase,long bonds will decrease in price more slowly than shorter bonds.

Accepted Answer

A) True 
 B)False

Question 14

Correct bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year.
 $\mathrm{P}=$$\sum_{t=1}^{n}$$\begin{array}{c}
\mathrm{C}_{t} \
------- \
(1+y \operatorname{tm})^{t}
\end{array}$+$\begin{array}{c}
\mathrm{FV} \
------- \
(1+y \operatorname{tm})^{n}
\end{array}$

$\begin{array}{l}
\text { where }\
\begin{array} { l l } 
\mathrm{P} & =\text { the current market price of the bond } \
n & =\text { the number of semiannual periods to maturity } \
\mathrm{ytm} & =\text { the semiannual yield to maturity to be solved for } \
\mathrm{c} & =\text { the semiannual coupon in dollars } \
\mathrm{FV} & =\text { the face value (maturity or par value) which in this discussion is always } \$ 1,000
\end{array}
\end{array}$ 
What does this formula imply about the term structure of interest rates?How would real-world bond investors price bonds to correct for this?

Accepted Answer

It implies that the term structure of in

Yield spreads vary inversely with the: ______________________________.

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

Based on which of the following term structure theories are forward rates most useful?

If a bond has a coupon rate that is greater than the bond's YTM,the bond:

Both stocks and bonds are valued by summing the discounted future flows of interest (or dividends)and the repayment of principal (or sale of the stock).

Which of the following statements is most accurate? The real risk-free rate of interest is the:

If the yield curve has a steep upward slope,investors expect:

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

A financial crisis or an accounting scandal can just as easily cause yield spreads to widen as weak earnings at a company.

Risk premiums,or yield spreads,refer to the issue characteristics of bonds.They are the result of which 7 factors:1) 2)3)4)5)6)_7)___

Bond traders use the term "basis point" to mean one percentage point in interest rate.

Which of the following is a situation in which an investor will not receive the promised yield to maturity?

As interest rates increase,long bonds will decrease in price more slowly than shorter bonds.

Understanding Investments

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Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Portfolio Selection

Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bonds: Analysis and Strategy

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Exam 17: Bond Yields

Yield spreads vary inversely with the: ______________________________.

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

Based on which of the following term structure theories are forward rates most useful?

If a bond has a coupon rate that is greater than the bond's YTM,the bond:

Both stocks and bonds are valued by summing the discounted future flows of interest (or dividends)and the repayment of principal (or sale of the stock).

Which of the following statements is most accurate? The real risk-free rate of interest is the:

If the yield curve has a steep upward slope,investors expect:

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

A financial crisis or an accounting scandal can just as easily cause yield spreads to widen as weak earnings at a company.

Risk premiums,or yield spreads,refer to the issue characteristics of bonds.They are the result of which 7 factors:1)______ 2)______3)______4)______5)______6)_____7)_____

Bond traders use the term "basis point" to mean one percentage point in interest rate.

Which of the following is a situation in which an investor will not receive the promised yield to maturity?

As interest rates increase,long bonds will decrease in price more slowly than shorter bonds.

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Portfolio Selection

Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bonds: Analysis and Strategy

Options

Futures

Portfolio Management

Evaluation of Investment Performance

Filters

Risk premiums,or yield spreads,refer to the issue characteristics of bonds.They are the result of which 7 factors:1) 2)3)4)5)6)_7)___