Question 1

Yield to maturity is equivalent to market rate of interest.

Accepted Answer

A) True 
 B)False

Question 2

Lower-quality bonds tend to be in high demand during a recession.

Accepted Answer

A) True 
 B)False

Question 3

A descending term structure reflects the view that rates will increase in the future.

Accepted Answer

A) True 
 B)False

Question 4

Short-term interest rates have _________ volatility in comparison to long-term interest rates.

Accepted Answer

A) Much less 
B) More 
C) Equal 
D) Slightly less 
A) Much less 
B) More 
C) Equal 
D) Slightly less

Question 5

The impact of interest rate changes on bond prices can be magnified by:

Accepted Answer

A) investing in speculative high-risk high-yield bonds. 
B) investing in higher-quality corporate bonds. 
C) investing in short-term bonds. 
D) More than one of the above 
A) investing in speculative high-risk high-yield bonds. 
B) investing in higher-quality corporate bonds. 
C) investing in short-term bonds. 
D) More than one of the above

Question 6

Inflationary expectations have the greatest impact on short-term rates.

Accepted Answer

A) True 
 B)False

Question 7

If the market price of a bond is less than the call price, yield to call is a reasonable calculation for yield.

Accepted Answer

A) True 
 B)False

Question 8

The Oxford Fixed Income Fund invests heavily in bonds. If the fund manager thinks that interest rates are going to fall, what changes should she make in her investment portfolio?

Accepted Answer

A) Increase investment in long-term bonds 
B) Increase investment in short-term debt instruments 
C) Increase investment in equity securities 
D) Buy callable bonds 
E) Buy real assets 
A) Increase investment in long-term bonds 
B) Increase investment in short-term debt instruments 
C) Increase investment in equity securities 
D) Buy callable bonds 
E) Buy real assets

Question 9

What is the approximate yield to maturity of an 8% coupon bond, with a par value of $1,000? The bond is currently selling for $920 and has five years to maturity.

Accepted Answer

10.08%
Exp

Question 10

The most widely used theory to explain the term structure of interest rates is the:

Accepted Answer

A) liquidity preference theory. 
B) market segmentation theory. 
C) expectations hypothesis. 
D) interest allocation theory. 
A) liquidity preference theory. 
B) market segmentation theory. 
C) expectations hypothesis. 
D) interest allocation theory.

Question 11

Deep discount bonds reflect questionable quality.

Accepted Answer

A) True 
 B)False

Question 12

The term structure of interest rates refers to:

Accepted Answer

A) the relationships between interest rates and term to maturity. 
B) the idea that any long-term rate is the average of expected future short-term rates. 
C) a general expectation of higher future interest rates. 
D) the idea that the terms of the bond may change as time to maturity changes. 
E) More than one of the above are true 
A) the relationships between interest rates and term to maturity. 
B) the idea that any long-term rate is the average of expected future short-term rates. 
C) a general expectation of higher future interest rates. 
D) the idea that the terms of the bond may change as time to maturity changes. 
E) More than one of the above are true

Question 13

When should an investor calculate both yield to maturity and yield to call?

Accepted Answer

A) Whenever there is a call provision 
B) When the sum of the present values of the interest payments exceeds the call price 
C) When the market price is greater than or equal to the call price 
D) Whenever the funds can be reinvested 
E) When interest rates increase above the coupon rate 
A) Whenever there is a call provision 
B) When the sum of the present values of the interest payments exceeds the call price 
C) When the market price is greater than or equal to the call price 
D) Whenever the funds can be reinvested 
E) When interest rates increase above the coupon rate

Question 14

Historically, interest rates have been coincident indicators in the economy.

Accepted Answer

A) True 
 B)False

Question 15

The price of a lower coupon rate bond is more sensitive to interest rate changes than higher coupon rate bonds.

Accepted Answer

A) True 
 B)False

Question 16

A basis point is one-tenth of l%.

Accepted Answer

A) True 
 B)False

Question 17

The price of a bond represents simply the future value of interest payments.

Accepted Answer

A) True 
 B)False

Question 18

Yield to maturity considers annual interest, difference between current price and maturity value, and years to maturity.

Accepted Answer

A) True 
 B)False

Question 19

Assuming interest rates are expected to fall, which of the following will most likely maximize price increase?

Accepted Answer

A) Commercial paper 
B) U.S. Treasury bills 
C) 30-year corporate bonds 
D) There is not enough information to tell 
A) Commercial paper 
B) U.S. Treasury bills 
C) 30-year corporate bonds 
D) There is not enough information to tell

Question 20

What would be the current yield of a 6% coupon bond priced at $950?

Accepted Answer

6.32%
Explanation: c

Exam 12: Principles of Bond Valuation and Investment

Yield to maturity is equivalent to market rate of interest.

Lower-quality bonds tend to be in high demand during a recession.

A descending term structure reflects the view that rates will increase in the future.

Short-term interest rates have _________ volatility in comparison to long-term interest rates.

The impact of interest rate changes on bond prices can be magnified by:

Inflationary expectations have the greatest impact on short-term rates.

If the market price of a bond is less than the call price, yield to call is a reasonable calculation for yield.

The Oxford Fixed Income Fund invests heavily in bonds. If the fund manager thinks that interest rates are going to fall, what changes should she make in her investment portfolio?

What is the approximate yield to maturity of an 8% coupon bond, with a par value of $1,000? The bond is currently selling for $920 and has five years to maturity.

The most widely used theory to explain the term structure of interest rates is the:

Deep discount bonds reflect questionable quality.

The term structure of interest rates refers to:

When should an investor calculate both yield to maturity and yield to call?

Historically, interest rates have been coincident indicators in the economy.

The price of a lower coupon rate bond is more sensitive to interest rate changes than higher coupon rate bonds.

A basis point is one-tenth of l%.

The price of a bond represents simply the future value of interest payments.

Yield to maturity considers annual interest, difference between current price and maturity value, and years to maturity.

Assuming interest rates are expected to fall, which of the following will most likely maximize price increase?

What would be the current yield of a 6% coupon bond priced at $950?

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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