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Question;[i]. One of the basic;relationships in interest rate theory is that, other things held constant, for;a given change in the required rate of return, the the time to maturity, the the change in price.;a. longer, smaller.;b. shorter, larger.;c. longer, greater.;d. shorter, smaller.;e. Answers c and d are correct.;[ii]. Which of the following;statements is most correct?;a. All else equal, long-term;bonds have more interest rate risk than short term bonds.;b. All else equal, higher;coupon bonds have more reinvestment risk than low coupon bonds.;c. All else equal, short-term;bonds have more reinvestment risk than do long-term bonds.;d. Statements a and c are;correct.;e. All of the statements above;are correct.;[iii]. Which of the following;events would make it more likely that a company would choose to call its;outstanding callable bonds?;a. A reduction in market;interest rates.;b. The company's bonds are;downgraded.;c. An increase in the call;premium.;d. Answers a and b are correct.;e. Answers a, b, and c are;correct.;[iv]. Other things held constant;if a bond indenture contains a call provision, the yield to maturity that would;exist without such a call provision will generally be _________________ the YTM;with it.;a. higher than;b. lower than;c. the same as;d. either higher or lower;depending on the level of call premium, than;e. unrelated to;[v]. All of the following may;serve to reduce the coupon;rate that would otherwise be required on a bond issued at par, except a;a. Sinking fund.;b. Restrictive;covenant.;c. Call provision.;d. Change in rating from Aa to;Aaa.;e. None of the answers above;(all may reduce the required coupon rate).;[vi]. Which of the following;statements is most correct?;a. All else equal, if a bond?s;yield to maturity increases, its price will fall.;b. All else equal, if a bond?s;yield to maturity increases, its current yield will fall.;c. If a bond?s yield to;maturity exceeds the coupon rate, the bond will sell at a premium over par.;d. All of the answers above are;correct.;e. None of the answers above is;correct.;[vii]. Which of the following;statements is most correct?;a. If a bond?s yield to;maturity exceeds its annual coupon, then the bond will be trading at a premium.;b. If interest rates increase;the relative price change of a 10-year coupon bond will be greater than the;relative price change of a 10-year zero coupon bond.;c. If a coupon bond is selling;at par, its current yield equals its yield to maturity.;d. Both a and c are correct.;e. None of the answers above is correct.;[viii]. A 10-year corporate bond has;an annual coupon payment of 9 percent.;The bond is currently selling at par ($1,000). Which of the following statements is most;correct?;a.;The bond?s yield to maturity is;9 percent.;b.;The bond?s current yield is 9;percent.;c.;If the bond?s yield to maturity;remains constant, the bond?s price will remain at par.;d.;Both answers a and c are;correct.;e.;All of the answers above are;correct.;[ix]. Which of the following;statements is most correct?;a. Sinking;fund provisions do not require companies to retire their debt, they only;establish ?targets? for the company to reduce its debt over time.;b. Sinking;fund provisions sometimes work to the detriment of bondholders ? particularly;if interest rates have declined over time.;c. If;interest rates have increased since the time a company issues bonds with a;sinking fund provision, the company is more likely to retire the bonds by;buying them back in the open market, as opposed to calling them in at the;sinking fund call price.;d. Statements;a and b are correct.;e. Statements;b and c are correct.;[x]. Which of the following;statements is most correct?;a. Retiring bonds under a;sinking fund provision is similar to calling bonds under a call provision in;the sense that bonds are repurchased by the issuer prior to maturity.;b. Under a sinking fund, bonds;will be purchased on the open market by the issuer when the bonds are selling;at a premium and bonds will be called in for redemption when the bonds are;selling at a discount.;c. The sinking fund provision;makes a debt issue less risky to the investor.;d. Both statements a and c are;correct.;e. All of the statements above;are correct.;[xi]. Which of the following;statements is most correct?;a. Junk bonds;typically have a lower yield to maturity relative to investment grade bonds.;b. A;debenture is a secured bond which is backed by some or all of the firm?s;fixed assets.;c. Subordinated;debt has less default risk than senior debt.;d. All of the;statements above are correct.;e.;None of the statements above is;correct.;[xii]. Which of the following;statements is most correct?;a. Rising inflation makes the actual yield to;maturity on a bond greater than the quoted yield to maturity which is based on;market prices.;b. The yield to maturity for a coupon bond that;sells at its par value consists entirely of an interest yield, it has a zero;expected capital gains yield.;c. On an expected yield basis, the expected;capital gains yield will always be positive because an investor would not;purchase a bond with an expected capital loss.;d. The market value of a bond will always approach;its par value as its maturity date approaches.;This holds true even if the firm enters bankruptcy.;e. All of the statements above are false.;[xiii]. Which of the following;statements is most correct?;a. The current yield on Bond A;exceeds the current yield on Bond B, therefore, Bond A must have a higher yield;to maturity than Bond B.;b. If a bond is selling at a;discount, the yield to call is a better measure of return than the yield to;maturity.;c. If a coupon bond is selling;at par, its current yield equals its yield to maturity.;d. Both a and b are correct.;e. Both b and c are correct.;[xiv]. Assume that all interest;rates in the economy decline from 10 percent to 9 percent. Which of the following bonds will have the;largest percentage increase in;price?;a. A;10-year bond with a 10 percent coupon.;b. An;8-year bond with a 9 percent coupon.;c. A;10-year zero coupon bond.;d. A;1-year bond with a 15 percent coupon.;e. A;3-year bond with a 10 percent coupon.;[xv]. Which of the following has;the greatest price risk?;a. A 10-year, $1,000 face;value, 10 percent coupon bond with semiannual interest payments.;b. A 10-year, $1,000 face;value, 10 percent coupon bond with annual interest payments.;c. A 10-year, $1,000 face;value, zero coupon bond.;d. A 10-year $100 annuity.;e. All of the above have the;same price risk since they all mature in 10 years.;[xvi]. If the yield to maturity;decreased 1 percentage point, which of the following bonds would have the;largest percentage increase in value?;a. A 1-year bond with an 8;percent coupon.;b. A 1-year zero-coupon bond.;c. A 10-year zero-coupon bond.;d. A 10-year bond with an 8;percent coupon.;e. A 10-year bond with a 12;percent coupon.;[xvii]. If interest rates fall from 8;percent to 7 percent, which of the following bonds will have the largest;percentage increase in its value?;a. A 10-year zero coupon bond.;b. A 10-year bond with a 10;percent semiannual coupon.;c. A 10-year bond with a 10;percent annual coupon.;d. A 5-year zero coupon bond.;e. A 5-year bond with a 12;percent annual coupon.;[xviii]. Which of the following;statements is most correct?;a. Other things held constant;a callable bond would have a lower;required rate of return than a noncallable bond.;b. Other things held constant;a corporation would rather issue noncallable bonds than callable bonds.;c. Reinvestment rate risk is;worse from a typical investor's standpoint than interest rate risk.;d. If a 10-year, $1,000 par;zero coupon bond were issued at a price which gave investors a 10 percent rate of;return, and if interest rates then dropped to the point where rd =;YTM = 5%, we could be sure that the bond would sell at a premium over its $1,000 par value.;e. If a 10-year, $1,000 par;zero coupon bond were issued at a price which gave investors a 10 percent rate;of return, and if interest rates then dropped to the point where rd;= YTM = 5%, we could be sure that the bond would sell at a discount below its $1,000 par value.;[xix]. Which of the following;statements is most correct?;a. The market value of a bond;will always approach its par value as its maturity date approaches, provided;the issuer of the bond does not go bankrupt.;b. If the Federal Reserve;unexpectedly announces that it expects inflation to increase, then we would;probably observe an immediate increase in bond prices.;c. The total yield on a bond is;derived from interest payments and changes in the price of the bond.;d. Statements a and c are;correct.;e. All of the statements above;are correct.;[xx]. Which of the following;statements is most correct?;a. If a bond is selling for a;premium, this implies that the bond?s yield to maturity exceeds its coupon;rate.;b. If a coupon bond is selling;at par, its current yield equals its yield to maturity.;c. If rates fall after its;issue, a zero coupon bond could trade for an amount above its par value.;d. Statements b and c are;correct.;e. None of the statements above;is correct.;[xxi]. Which of the following;statements is most correct?;a. All else equal, a bond that;has a coupon rate of 10 percent will sell at a discount if the required return;for a bond of similar risk is 8 percent.;b. The price of a discount bond;will increase over time, assuming that the bond?s yield to maturity remains;constant over time.;c. The total return on a bond for;a given year consists only of the coupon interest payments received.;d. Both b and c are correct.;e. All of the statements above;are correct........

 

Paper#44683 | Written in 18-Jul-2015

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