Exam 8: Bond Valuation and Risk

A bond with a 12 percent quarterly coupon rate has a yield to maturity of 16 percent. The bond has a par value of $1,000 and matures in 20 years. Based on this information, a fair price of thisbond is $____.

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

When two securities have the same expected cash flows, the value of the ____ security will be higher than the value of the ____ security.

An economic announcement signaling ____ economic growth in the future will probably cause bond prices to ____.

Which of the following will most likely cause bond prices to increase? (Assume no possibility of higher inflation in the future.)

Bonds that sell below their par value are called premium bonds.

A bank buys bonds with a par value of $25 million for $24,040,000. The coupon rate is 10 percent, and the bonds make annual payments. The bonds mature in four years. The bank wants to sell themin two years and estimates the required rate of return in two years will be 8 percent. What will the market value of the bonds be in two years?

The prices of ____-coupon bonds and bonds with ____ maturities are most sensitive to changes in the required rate of return.

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

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

If interest rates consistently rise over a specific period, the market price of a bond you own would likely ____ over this period. (Assume no major change in the bond's default 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

For a bond of a given par value, the higher the investor's required rate of return is above the coupon rate, the

With a(n) ____ strategy, funds are allocated to bonds with a short term to maturity and bonds with a long term to maturity. Thus, this strategy allocates some funds to achieving a relativelyhighreturn and other funds to covering liquidity needs.

If interest rates consistently decline over a specific period, the market price of a bond you own would likely ____ over this period. (Assume no major change in the bond's default risk.)

Consider a coupon bond that sold at par value two years ago. If interest rates are much lower now than when this bond was issued, the coupon rate of that bond will likely be ____ the prevailinginterest rates, and the present value of the bond will be ____ its par value.

From the perspective of investing institutions, the most attractive foreign bonds offer a ____ and are denominated in a currency that ____ over the investment horizon.

A $1,000 par bond with five years to maturity is currently priced at $892. Annual interest payments are $90. What is the yield to maturity?

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 todayisworth $101 million. What is the forecasted return of this bond portfolio?

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