Question 1

Which of the following bond pricing rules is incorrect?

Accepted Answer

A) Bond prices and interest rates are inversely related 
B) Prices of long-term bonds are less sensitive to changes in interest rates than short-term bonds 
C) Bond price sensitivity increases at a decreasing rate as maturity increases 
D) Bond prices are more sensitive to a decline in market yield to maturity 
A) Bond prices and interest rates are inversely related 
B) Prices of long-term bonds are less sensitive to changes in interest rates than short-term bonds 
C) Bond price sensitivity increases at a decreasing rate as maturity increases 
D) Bond prices are more sensitive to a decline in market yield to maturity

Question 2

The approximate yield to maturity method tends to understate the true yield for bonds trading at a discount.

Accepted Answer

A) True 
 B)False

Question 3

A drop in interest rates causes proportionally greater gains than increases in rates will cause losses.

Accepted Answer

A) True 
 B)False

Question 4

Which is not a theory related to the term structure of interest ratio?

Accepted Answer

A) Expectations hypothesis 
B) Liquidity preference theory 
C) Efficient market hypothesis 
D) Market segmentation theory 
A) Expectations hypothesis 
B) Liquidity preference theory 
C) Efficient market hypothesis 
D) Market segmentation theory

Question 5

Current yield is the annual interest divided by the price of the bond.

Accepted Answer

A) True 
 B)False

Question 6

Current yield does not take the maturity date into consideration.

Accepted Answer

A) True 
 B)False

Question 7

The market segmentation theory focuses on:

Accepted Answer

A) the impact of institutional investors on the yield curve. 
B) the maturity preferences of banks and those of life insurance companies. 
C) phases of the business cycle. 
D) All of the above 
A) the impact of institutional investors on the yield curve. 
B) the maturity preferences of banks and those of life insurance companies. 
C) phases of the business cycle. 
D) All of the above

Question 8

The total return an investor would receive from income plus capital appreciation, assuming a bond is held to maturity, is called the:

Accepted Answer

A) call premium. 
B) current yield. 
C) yield to maturity. 
D) capital gains yielD. 
E) More than one of the above 
A) call premium. 
B) current yield. 
C) yield to maturity. 
D) capital gains yielD. 
E) More than one of the above

Question 9

A 15-year, 7% coupon rate bond is selling for $771.82. What is the current yield of the bond?

Accepted Answer

A) 22.8% 
B) 7.0% 
C) 9.1% 
D) 10.0% 
E) 30.7% 
A) 22.8% 
B) 7.0% 
C) 9.1% 
D) 10.0% 
E) 30.7%

Question 10

The upward slope of the yield curve is caused by investors' recognition of the relative difficulty of converting long-term securities to cash. This is the:

Accepted Answer

A) expectations hypothesis. 
B) liquidity preference theory. 
C) market segmentation theory. 
D) More than one of the above 
A) expectations hypothesis. 
B) liquidity preference theory. 
C) market segmentation theory. 
D) More than one of the above

Question 11

The investor in deep-discount bonds generally accepts a lower yield because of:

Accepted Answer

A) the unique conversion feature associated with deep discount bonds. 
B) the extremely low risk of a call. 
C) the fact that the return represents pure interest income. 
D) More than one of the above 
A) the unique conversion feature associated with deep discount bonds. 
B) the extremely low risk of a call. 
C) the fact that the return represents pure interest income. 
D) More than one of the above

Question 12

The anticipated realized yield represents the return over the holding period.

Accepted Answer

A) True 
 B)False

Question 13

Yield to maturity can be thought of as the internal rate of return of the bond.

Accepted Answer

A) True 
 B)False

Which of the following bond pricing rules is incorrect?

The approximate yield to maturity method tends to understate the true yield for bonds trading at a discount.

A drop in interest rates causes proportionally greater gains than increases in rates will cause losses.

Which is not a theory related to the term structure of interest ratio?

Current yield is the annual interest divided by the price of the bond.

Current yield does not take the maturity date into consideration.

The market segmentation theory focuses on:

The total return an investor would receive from income plus capital appreciation, assuming a bond is held to maturity, is called the:

A 15-year, 7% coupon rate bond is selling for $771.82. What is the current yield of the bond?

The upward slope of the yield curve is caused by investors' recognition of the relative difficulty of converting long-term securities to cash. This is the:

The investor in deep-discount bonds generally accepts a lower yield because of:

The anticipated realized yield represents the return over the holding period.

Yield to maturity can be thought of as the internal rate of return of the bond.

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

Filters

Exam 12: Principles of Bond Valuation and Investment

Which of the following bond pricing rules is incorrect?

The approximate yield to maturity method tends to understate the true yield for bonds trading at a discount.

A drop in interest rates causes proportionally greater gains than increases in rates will cause losses.

Which is not a theory related to the term structure of interest ratio?

Current yield is the annual interest divided by the price of the bond.

Current yield does not take the maturity date into consideration.

The market segmentation theory focuses on:

The total return an investor would receive from income plus capital appreciation, assuming a bond is held to maturity, is called the:

A 15-year, 7% coupon rate bond is selling for $771.82. What is the current yield of the bond?

The upward slope of the yield curve is caused by investors' recognition of the relative difficulty of converting long-term securities to cash. This is the:

The investor in deep-discount bonds generally accepts a lower yield because of:

The anticipated realized yield represents the return over the holding period.

Yield to maturity can be thought of as the internal rate of return of the bond.

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

Filters