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| 1 | |
For a bond, the required return is equal to the yield-to-maturity which is equal to the market rate. |
| | A) | True |
| | B) | False |
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| 2 | |
A premium bond is a bond that sells for less than its par value. |
| | A) | True |
| | B) | False |
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| 3 | |
In common usage, "short-term" debt refers to debt with a maturity of one year or less. |
| | A) | True |
| | B) | False |
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| 4 | |
Bond yields and prices move inversely with one another. |
| | A) | True |
| | B) | False |
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| 5 | |
The term structure of interest rates is the relationship between real interest rates on default-free, pure discount securities and time to maturity. |
| | A) | True |
| | B) | False |
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| 6 | |
A bond sold five weeks ago for $1,098. The bond is worth $1,047 in today's market. Assuming no changes in risk, which one of the following is true? |
| | A) | The face value of the bond must be $1,100. |
| | B) | The bond must be within one year of maturity. |
| | C) | Interest rates must be lower now than they were five weeks ago. |
| | D) | The bond's current yield has increased from five weeks ago. |
| | E) | The coupon payment of the bond must have increased. |
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| 7 | |
If a 10-year bond's coupon rate is less than the required rate, then: |
| | A) | the holder of the bond is guaranteed a profit when the bond is sold, regardless of when it is sold. |
| | B) | a portion of the return a buyer of this bond will earn will come from buying the bond at a discount. |
| | C) | the bond sells at par because the required rate of return is adjusted to reflect the discrepancy. |
| | D) | the bond sells at a premium because it is a long-term bond. |
| | E) | the bond will be repaid by the issuer at a discounted price. |
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| 8 | |
Which of the following statements about bond ratings is (are) accurate?
I. Bond ratings are typically paid for by a company's bondholders.
II. Bond ratings are based solely on information acquired from sources other than the bond issuer.
III. Bond ratings represent an independent assessment of the credit-worthiness of bonds. |
| | A) | I only |
| | B) | III only |
| | C) | I and II only |
| | D) | I and III only |
| | E) | II and III only |
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| 9 | |
Which of the following risks do debt ratings specifically attempt to assess?
I. interest rate
II. default
III. call |
| | A) | I only |
| | B) | II only |
| | C) | I and II only |
| | D) | II and III only |
| | E) | I, II, and III |
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| 10 | |
All else equal, the existence of a _____ will increase the required return on a bond. |
| | A) | call provision |
| | B) | conversion feature |
| | C) | put provision |
| | D) | trust deed |
| | E) | protective covenant |
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| 11 | |
Which of the following statements is (are) true?
I. All else equal, the value of a perpetual bond will remain unchanged from one year to the next, unless market interest rates change.
II. All else equal, bond prices and coupon rates are inversely related.
III. All else equal, given two bonds identical but for coupon, the market price of the lower coupon bond will change more (in percentage terms) than that of the higher coupon bond for a given change in market interest rates. |
| | A) | I only |
| | B) | I and II only |
| | C) | I and III only |
| | D) | II and III only |
| | E) | I, II, and III |
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| 12 | |
The _____ is known as the term structure of interest rates. |
| | A) | inflation premium |
| | B) | interest rate risk premium |
| | C) | Fisher effect |
| | D) | relationship between short and long-term interest rates |
| | E) | municipal bond yield curve |
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| 13 | |
Which one of the following is true? |
| | A) | If the rate of inflation is expected to decline by a small amount, there cannot be an upward-sloping term structure of interest rates. |
| | B) | Investors demand an extra yield on a nontaxable bond as compensation for the unfavorable tax treatment. |
| | C) | The compensation investors demand for bearing interest rate risk adds a downward slope to the term structure of interest rates. |
| | D) | The compensation investors demand for buying bonds that don't trade very often is called a default premium. |
| | E) | A bond's yield is typically calculated assuming that all of the promised coupon and principal payments will be made. |
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| 14 | |
You earn a 5 percent real return. If the inflation rate is 4 percent, what is your nominal return? |
| | A) | 0.96 percent |
| | B) | 1.09 percent |
| | C) | 9.05 percent |
| | D) | 9.20 percent |
| | E) | 10.92 percent |
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| 15 | |
A Treasury bond is quoted at a price of 101:23. What is the price of this bond? |
| | A) | $987.85 |
| | B) | $1,010.23 |
| | C) | $1,012.30 |
| | D) | $1,017.19 |
| | E) | $1,178.75 |
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