Question 1

Yield to maturity takes into account everything except:

Accepted Answer

A) annual interest received. 
B) the difference between the current bond price and its maturity value. 
C) the number of years to maturity. 
D) the number of years since the bond's purchase. 
A) annual interest received. 
B) the difference between the current bond price and its maturity value. 
C) the number of years to maturity. 
D) the number of years since the bond's purchase. D

Question 2

As the economy recovers from a recession, what changes can be expected in the yield spread of corporate Baa bonds and U.S. government bonds?

Accepted Answer

A) The yield on Baa bonds will approach that of government securities 
B) The yield spread between U.S. government bonds and BBB corporate bonds will stay the same 
C) The yield spread will increase 
D) Either A or B will occur 
A) The yield on Baa bonds will approach that of government securities 
B) The yield spread between U.S. government bonds and BBB corporate bonds will stay the same 
C) The yield spread will increase 
D) Either A or B will occur A

Question 3

The value of a bond at any given time is the sum of:

Accepted Answer

A) the future interest payments and the par value. 
B) the present value of future interest payments and the present value of the par value. 
C) the future value of the interest payments and the future value of the par value. 
D) the present value of future interest payments and the market value. 
E) the present value of future interest payments and the future value of the par value. 
A) the future interest payments and the par value. 
B) the present value of future interest payments and the present value of the par value. 
C) the future value of the interest payments and the future value of the par value. 
D) the present value of future interest payments and the market value. 
E) the present value of future interest payments and the future value of the par value. B

Question 4

Inflationary expectations have no effect on bond prices.

Accepted Answer

A) True 
 B)False

Question 5

When the bond investor believes interest rates are going to fall, the best strategy would be to:

Accepted Answer

A) take a bearish position in the market by selling long-term bonds. 
B) take a bullish position in the market by buying long-term bonds. 
C) move out of bonds completely. 
D) keep his portfolio unchangeD. 
A) take a bearish position in the market by selling long-term bonds. 
B) take a bullish position in the market by buying long-term bonds. 
C) move out of bonds completely. 
D) keep his portfolio unchangeD.

Question 6

Deep discount bonds are not prone to calls because they sell at low prices.

Accepted Answer

A) True 
 B)False

Question 7

Interest rate changes affect low-quality issues to a greater degree than high-quality issues.

Accepted Answer

A) True 
 B)False

Question 8

a) What is the approximate yield to maturity of a 10% coupon rate, $1,000 par value bond which is currently priced at $1,200 with 11 years to maturity?
b) What would be the yield to call if the call can be made in 7 years at a price of $1,025?

Accepted Answer

a) 7.31%
b

Question 9

What effect, if any, will decrease in interest rates have on bond values?

Accepted Answer

A) Bond values will increase 
B) Bond values will decrease 
C) Bond values may increase or decrease, depending on the maturity, quality, and coupon rate 
D) None of the above 
A) Bond values will increase 
B) Bond values will decrease 
C) Bond values may increase or decrease, depending on the maturity, quality, and coupon rate 
D) None of the above

Question 10

A down-sloping yield curve indicates:

Accepted Answer

A) investors' anticipation of lower interest rates. 
B) investors' anticipation of lower inflation. 
C) that institutional investors are selling long-term bonds. 
D) More than one of the above 
A) investors' anticipation of lower interest rates. 
B) investors' anticipation of lower inflation. 
C) that institutional investors are selling long-term bonds. 
D) More than one of the above

Question 11

ABC Corp. issued a 12%, 20-year coupon rate bond 5 years ago. Interest rates are now 8%. Based on semi-annual analysis and using the table below, what is the current price of the bond?

Accepted Answer

$1,345.52
Explanation: 
Present value of

Question 12

The expectations hypothesis is that any long-term rate is an average of the expectations of future short-term rate over the applicable time horizon.

Accepted Answer

A) True 
 B)False

Question 13

The reinvestment assumption would have no effect on yield if the bond is held to maturity.

Accepted Answer

A) True 
 B)False

Question 14

If an investor needs to increase the quality of his portfolio during the low-confidence periods of a recession, he can enjoy usually high returns on lower-grade instruments relative to higher grades.

Accepted Answer

A) True 
 B)False

Question 15

An ascending term structure reflects the view that rates will increase in the future.

Accepted Answer

A) True 
 B)False

Question 16

What will happen to the market value of a bond if interest rates increase?

Accepted Answer

A) The market value will decrease 
B) The market value will increase 
C) The market value will increase or decrease, depending on the general economic climate 
D) The market value should remain level 
A) The market value will decrease 
B) The market value will increase 
C) The market value will increase or decrease, depending on the general economic climate 
D) The market value should remain level

Question 17

Current yield is always the best measure of a bond's yield.

Accepted Answer

A) True 
 B)False

Question 18

The term structure of interest rates depicts the relationship between maturity and interest rates.

Accepted Answer

A) True 
 B)False

Question 19

What formula measure would an investor use to calculate the yield on a 20-year bond with 10 years to maturity, if he or she only intends to hold the bond for 5 years?

Accepted Answer

A) Anticipated realized yield 
B) Yield to call 
C) Current yield 
D) Yield to maturity 
E) Any one of the above will measure the yield 
A) Anticipated realized yield 
B) Yield to call 
C) Current yield 
D) Yield to maturity 
E) Any one of the above will measure the yield

Question 20

Short-term rates are more volatile than long-term rates.

Accepted Answer

A) True 
 B)False

Exam 12: Principles of Bond Valuation and Investment

Yield to maturity takes into account everything except:

As the economy recovers from a recession, what changes can be expected in the yield spread of corporate Baa bonds and U.S. government bonds?

The value of a bond at any given time is the sum of:

Inflationary expectations have no effect on bond prices.

When the bond investor believes interest rates are going to fall, the best strategy would be to:

Deep discount bonds are not prone to calls because they sell at low prices.

Interest rate changes affect low-quality issues to a greater degree than high-quality issues.

a) What is the approximate yield to maturity of a 10% coupon rate, $1,000 par value bond which is currently priced at $1,200 with 11 years to maturity? b) What would be the yield to call if the call can be made in 7 years at a price of $1,025?

What effect, if any, will decrease in interest rates have on bond values?

A down-sloping yield curve indicates:

ABC Corp. issued a 12%, 20-year coupon rate bond 5 years ago. Interest rates are now 8%. Based on semi-annual analysis and using the table below, what is the current price of the bond?

The expectations hypothesis is that any long-term rate is an average of the expectations of future short-term rate over the applicable time horizon.

The reinvestment assumption would have no effect on yield if the bond is held to maturity.

If an investor needs to increase the quality of his portfolio during the low-confidence periods of a recession, he can enjoy usually high returns on lower-grade instruments relative to higher grades.

An ascending term structure reflects the view that rates will increase in the future.

What will happen to the market value of a bond if interest rates increase?

Current yield is always the best measure of a bond's yield.

The term structure of interest rates depicts the relationship between maturity and interest rates.

What formula measure would an investor use to calculate the yield on a 20-year bond with 10 years to maturity, if he or she only intends to hold the bond for 5 years?

Short-term rates are more volatile than long-term rates.

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

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