Question 1

What happens to the price of bonds,if interest rates go up?

Accepted Answer

A)  The price of bonds goes up.
B)  The price of bonds stays the same.
C)  The price of bonds goes down.
D)  The relationship between interest rates and bond prices cannot be determined.E) A) and B)
F) A) and C)

Question 2

Now let's look from the view of the investor who buys an 8 percent semiannual bond with 8 years remaining to maturity,when market rates are 6%.If this investor pays $1,125.44 for the bond,what is his current yield?

Accepted Answer

A)  3.55 percent
B)  7.11 percent
C)  8.00 percent
D)  10.00 percentE) B) and C)
F) All of the above

Question 3

What is the difference between the Yield-to-Maturity and the Realized Compound Yield?

Accepted Answer

A)  They are actually the same concept.
B)  The yield to maturity is the actual return,calculated at the end of the investment; the realized compound yield is the expected return at the beginning of the investment.
C)  The realized compound yield is the actual return,calculated at the end of the investment; the yield to maturity is the expected return at the beginning of the investment.
D)  The yield to maturity continues as far as the first call,the realized compound yield continues until final payment is made.E) B) and D)
F) All of the above

Question 4

Which of the following bonds will be most sensitive to changes in market interest rates?

Accepted Answer

A)  8 percent semiannual coupon with 8 years to maturity.
B)  6 percent semiannual coupon with 8 years to maturity.
C)  8 percent semiannual coupon with 6 years to maturity.
D)  6 percent semiannual coupon with 6 years to maturity.E) All of the above
F) A) and C)

Question 5

Which of the following is NOT a true statement?

Accepted Answer

A)  Duration measures the time until the principal is repaid.
B)  Duration is the weighted average of the timing of the bond's payments.
C)  The weights in the calculation of duration are the present value of each payment,divided by the value of the bond.
D)  Modified duration measures the sensitivity of the bond's price to interest rate changes.E) A) and C)
F) A) and D)

Question 6

Assume an investor buys a newly issued 8 percent,semi-annual 10 year bond at par.He sells it two years later,when market interest rates have decreased to 6 percent.How much is the investor's capital gain or loss?

Accepted Answer

A)  $1,000 gain
B)  $1,125.44 gain
C)  $125.44 gain
D)  $377.00 lossE) A) and C)
F) All of the above

Question 7

What is meant by the real risk-free rate of interest?

Accepted Answer

A)  The opportunity cost of foregoing consumption,representing the rate that must be offered to individuals to persuade them to save rather than consume.
B)  The rate actually used in the market,not in textbooks.
C)  The rate quoted on short-term Treasury bills.
D)  The nominal risk-free interest rate,less the expected inflation.E) All of the above
F) None of the above

Question 8

Bond traders use the term "basis point" to mean one percentage point in interest rate.

Accepted Answer

A) True 
 B)False

Question 9

As interest rates increase,long bonds will decrease in price more slowly than shorter bonds.

Accepted Answer

A) True 
 B)False

Question 10

An investor has three sources of dollar returns from a bond investment.Which of the following is NOT included among the three sources?

Accepted Answer

A)  The semi-annual coupon payments.
B)  The interest earned on reinvesting the coupon payments.
C)  The principal paid at maturity.
D)  The interest earned on reinvesting the last coupon and the principal.E) C) and D)
F) B) and C)

Exam 17: Bond Yields

Which of the following bonds will be most sensitive to changes in market interest rates?

Correct Answer
verified

As interest rates increase,long bonds will decrease in price more slowly than shorter bonds.

Correct Answer
verified

An investor has three sources of dollar returns from a bond investment.Which of the following is NOT included among the three sources?

Correct Answer
verified

Which of the following is NOT a true statement?

Correct Answer
verified

Now let's look from the view of the investor who buys an 8 percent semiannual bond with 8 years remaining to maturity,when market rates are 6%.If this investor pays $1,125.44 for the bond,what is his current yield?

Correct Answer
verified

Bond traders use the term "basis point" to mean one percentage point in interest rate.

Correct Answer
verified

Assume an investor buys a newly issued 8 percent,semi-annual 10 year bond at par.He sells it two years later,when market interest rates have decreased to 6 percent.How much is the investor's capital gain or loss?

Correct Answer
verified

What is meant by the real risk-free rate of interest?

Correct Answer
verified

What happens to the price of bonds,if interest rates go up?

Correct Answer
verified

What is the difference between the Yield-to-Maturity and the Realized Compound Yield?

Correct Answer
verified

Exam 17: Bond Yields

Which of the following bonds will be most sensitive to changes in market interest rates?

Correct AnswerverifiedShow Answer

As interest rates increase,long bonds will decrease in price more slowly than shorter bonds.

Correct AnswerverifiedShow Answer

An investor has three sources of dollar returns from a bond investment.Which of the following is NOT included among the three sources?

Correct AnswerverifiedShow Answer

Which of the following is NOT a true statement?

Correct AnswerverifiedShow Answer

Now let's look from the view of the investor who buys an 8 percent semiannual bond with 8 years remaining to maturity,when market rates are 6%.If this investor pays $1,125.44 for the bond,what is his current yield?

Correct AnswerverifiedShow Answer

Bond traders use the term "basis point" to mean one percentage point in interest rate.

Correct AnswerverifiedShow Answer

Assume an investor buys a newly issued 8 percent,semi-annual 10 year bond at par.He sells it two years later,when market interest rates have decreased to 6 percent.How much is the investor's capital gain or loss?

Correct AnswerverifiedShow Answer

What is meant by the real risk-free rate of interest?

Correct AnswerverifiedShow Answer

What happens to the price of bonds,if interest rates go up?

Correct AnswerverifiedShow Answer

What is the difference between the Yield-to-Maturity and the Realized Compound Yield?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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