Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

Calculate the price of a $1,000 face value bond that offers a $45 annual coupon, and has six years to maturity, when the interest rate is 6.0% (0.060).

Explain why the bid-ask spread on most municipal bonds would be greater than the spread on U.S.Treasury bonds.

An increase in expected inflation for any given nominal interest rate will cause the:

In calculating the current yield for a bond the:

The price (P) of a consol offering an annual coupon payment (C) is best expressed by:

The text identified the various sources of risk for bonds.Are U.S.Treasury TIPS bonds free from risk? Explain.

Which of the following makes fixed payments indefinitely?

Suppose that the interest rate on a conventional 30-year mortgage is currently 8%.You receive a call from a mortgage broker who offers you a 30-year adjustable rate mortgage at 2% that is adjusted once each year.Evaluate each mortgage in terms of the following: risk that the monthly payment will change over the next 30 years and interest-rate risk.

Could the holding period return ever be less than the yield to maturity? Explain.

Calculate the price of a zero coupon bond that has an interest rate of 6.65% (.0665), a face value of $100.00 and six-months to maturity.

Explain why two countries with the same average rate of inflation may not present the same inflation risk for holders of those countries' bonds?

Calculate the monthly payment for a 30-year mortgage, where the amount borrowed is $100,000 and the annual interest rate is 6.0%.

When expected inflation decreases for any given nominal interest rate, all of the following occur except the:

If the U.S.government's borrowing needs increase, all other factors constant the:

Once you buy a coupon bond, which of the following can change?

Which bond will have a higher yield to maturity, a $1,000 face value bond, with a 5.0% coupon rate that sells for $900; or a $1000 face value bond, with a $50 annual coupon that sells for $1,050? Explain your choice.

If the quantity of bonds supplied exceeds the quantity of bonds demanded, bond prices would:

In the late 1990s, the U.S.government ran a surplus for the first time in decades.It instituted a buyback program, whereby the Treasury bought outstanding government bonds.How would this program affect the bond market price, yield, and quantity of bonds? How might it affect the liquidity of government bonds?

Which of the following statements about the result of a deterioration in business conditions that also causes a decrease in a nation's wealth is false?

Calculate the holding period return for a $1,000 face value bond with a $60 annual coupon purchased for $970.00 and sold three years later for $1,060.00.