Exam 8: Bond Valuation and Risk

International diversification of bonds reduces the sensitivity of a bond portfolio to any single country's interest rate movements.

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

Any announcement that signals stronger than expected economic growth tends to increase bond prices.

The ____________ was recently established to identify risks in the U.S. financial system and make regulatory recommendations that could reduce such risks.

If the level of inflation is expected to ____, there will be ____ pressure on interest rates and ____ pressure on the required rate of return on bonds.

Although the European debt crisis had substantial effects on European financial markets, the crisis was contained and did not affect markets and financial institutions outside Europe.

The required rate of return on a certain bond changes from 12 percent to 8 percent, causing the price of the bond to change from $900 to $1,100. The bond price elasticity of this bond is

A bond with a $1,000 par value has an 8 percent annual coupon rate. It will mature in 4 years, and annual coupon payments are made at the end of each year. Present annual yields on similar bondsare 6 percent. What should be the current price?

Assume bond portfolio managers actively manage their portfolios. If they expect interest rates to ____, they would shift toward ____.

When the European Central Bank provides credit to a country that is experiencing debt repayment problems, the ECB commonly:

The actual relationship reflecting the response of a bond's price to a change in bond yields is

The bonds that are most sensitive to interest rate movements have

Systemic risk could be avoided if all financial institutions would use derivative securities as a means of insuring against the default of the debt securities that they hold.

In a laddered strategy, investors create a bond portfolio that will generate periodic income that can match their expected periodic expenses.

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.

If analysts expect that the demand for loanable funds will increase and the supply of loanable funds will decrease, they would most likely expect interest rates to ____ and prices of existingbonds to ____.

If investors rely strictly on modified duration to estimate the percentage change in the price of a bond, they will tend to ____ the price decline associated with an increase in rates and ____the price increase associated with a decrease in rates.

The market price of a bond is partly determined by the timing of the payments made to bondholders.

Which of the following is not a factor affecting the market price of a foreign bond held by a U.S. investor?

Zero-coupon bonds with a par value of $1,000,000 have a maturity of 10 years and a required rate of return of 9 percent. What is the current price?