Details of this Paper

finance data bank

Description

solution


Question

Question;8.2 Dynamic Behavior of Bond Prices;7);Which of the following statements is;false?;A);When a bond is trading at a discount, the;price drop when a coupon is paid will be larger than the price increase between;coupons, so the bond's discount will tend to decline as time passes.;B);When a bond trades at a price equal to its;face value, it is said to trade at par.;C);As interest rates and bond yield rise;bond prices will fall.;D);Ultimately, the prices of all bonds approach;the bond's face value when the bonds mature and their last coupon are paid.;8);Which of the following statements is;false?;A);A bond trades at par when its coupon rate;is equal to its yield to maturity.;B);The clean price of a bond is adjusted for;accrued interest.;C);The price of the bond will drop by the;amount of the coupon immediately after the coupon is paid.;D);If a coupon bond's yield to maturity;exceeds its coupon rate, the present value of its cash flows at the yield to maturity;will be greater than its face value.;9);Which of the following formulas is;incorrect?;A);Invoice price= dirty price;B);Clean price= dirty price- accrued interest;C);Accrued interest= coupon amount?;D);Cash price= clean price+ accrued interest;10);Which of the following statements is;false?;A);Prices of bonds with lower durations are;more sensitive to interest rate changes.;B);When a bond is trading at a discount, the;price increase between coupons will exceed the drop when a coupon is paid, so;the bond?s price will rise and its discount will decline as time passes.;C);Coupon bonds may trade at a discount, at a;premium, or at par.;D);The sensitivity of a bond's price changes;in interest rates is the bond's duration.;WS3);Consider a zero coupon bond with 20 years;to maturity. The amount that the price;of the bond will change if its yield to maturity decreases from 7% to 5% is;closest to;A);$120;B);-$53;C);$53;D);$673;Consider the following four bonds that pay;annual coupons;Bond;Years to maturity;Coupon;YTM;A;1;0%;5%;B;5;6%;7%;C;10;10%;9%;D;20;0%;8%;11);Which of the four bonds is the most;sensitive to a one percent increase in the YTM?;A);Bond A;B);Bond B;C);Bond C;D);Bond D;12);Which of the four bonds is the least;sensitive to a one percent increase in the YTM?;A);Bond A;B);Bond B;C);Bond C;D);Bond D;WS4);Consider a corporate bond with a $1000;face value, 8% coupon with semiannual coupon payments, 7 years until maturity;and a YTM of 9%. It has been 57 days;since the last coupon payment was made and there are 182 days in the current;coupon period. The dirty (cash) price;for this bond is closest to;A);$949.70;B);$961.40;C);$936.40;D);$948.90;13);Consider a corporate bond with a $1000;face value, 10% coupon with semiannual coupon payments, 5 years until maturity;and currently is selling for (has a cash price of) $1,113.80. The next coupon payment will be made in 63;days and there are 182 days in the current coupon period. The clean price for this bond is closest to;A);$1146.50;B);$1065.70;C);$1113.80;D);$1081.10;Use the table for the question(s);below.;Consider the following four bonds that pay;annual coupons;Bond;Years to maturity;Coupon;YTM;A;1;0%;5%;B;5;6%;7%;C;10;10%;9%;D;20;0%;8%;14);Assume that the YTM increases by 1% for;each of the four bonds listed. Rank the;bonds based upon the sensitivity of their prices from least to most sensitive.;8.3 The Yield Curve and Bond Arbitrage;15);Which of the following statements is;false?;A);We can use the law of one price to compute;the price of a coupon bond from the prices of zero-coupon bonds.;B);The plot of the yields of coupon bonds of;different maturities is called the coupon-paying yield curve.;C);It is possible to replicate the cash flows;of a coupon bond using zero-coupon bonds.;D);Because the coupon bond provides cash;flows at different points in time, the yield to maturity of a coupon bond is;the simple average of the yields of the zero-coupon bonds of equal and shorter maturities.

 

Paper#51226 | Written in 18-Jul-2015

Price : $22
SiteLock