Question 1

The term structure of interest rates can be described as the:

Accepted Answer

A)  Relationship between the spot interest rates and the bond prices 
B)  Relationship between spot interest rates and stock prices 
C)  Relationship between spot interest rates and maturity of a bond 
D)  None of the above 
A)  Relationship between the spot interest rates and the bond prices 
B)  Relationship between spot interest rates and stock prices 
C)  Relationship between spot interest rates and maturity of a bond 
D)  None of the above

Question 2

If a bond is paying interest semi-annually, then:

Accepted Answer

A)  interest is paid once a year 
B)  interest is paid every six moths 
C)  interest is paid every three months 
D)  none of the above 
A)  interest is paid once a year 
B)  interest is paid every six moths 
C)  interest is paid every three months 
D)  none of the above

Question 3

A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is:

Accepted Answer

A)  9.09% 
B)  6.8% 
C)  14.6% 
D)  6.0% 
A)  9.09% 
B)  6.8% 
C)  14.6% 
D)  6.0%

Question 4

A forward rate prevailing from period three through to period four can be: 
I. readily observed in the market place
II. extracted from spot interest rate with 3 and 4 years to maturity
III. extracted from 1 and 2 year spot interest rates

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I and III only 
A)  I only 
B)  II only 
C)  III only 
D)  I and III only

Question 5

Briefly explain the term "yield to maturity."

Accepted Answer

The yield to maturity is the single disc

Question 6

If the 4-year spot rate is 7% and the 3-year spot rate is 6%, what is the one-year forward rate of interest three years from now?

Accepted Answer

A)  10.0% 
B)  6.5% 
C)  9.6% 
D)  None of the above 
A)  10.0% 
B)  6.5% 
C)  9.6% 
D)  None of the above

Question 7

Forward rates are always higher than spot rates.

Accepted Answer

A) True 
 B)False

Question 8

The duration of any bond is the same as its maturity.

Accepted Answer

A) True 
 B)False

Question 9

If the term structure of interest rate is flat the nine-year interest rate is equal to the ten-year interest rate.

Accepted Answer

A) True 
 B)False

Question 10

The yield to maturity on a bond is really its internal rate of return.

Accepted Answer

A) True 
 B)False

Question 11

If the 5-year spot rate is 10% and the 4-year spot rate is 9%, what is the one-year forward rate of interest four years from now?

Accepted Answer

A)  14.1% 
B)  9.5% 
C)  1.0% 
D)  11.0% 
A)  14.1% 
B)  9.5% 
C)  1.0% 
D)  11.0%

Question 12

A bond with a face value of $1,000, coupon rate of 0%, yield to maturity of 9%, and ten years to maturity. This bond's duration is:

Accepted Answer

A)  6.7 years 
B)  7.5 years 
C)  9.6 years 
D)  10.0 years 
A)  6.7 years 
B)  7.5 years 
C)  9.6 years 
D)  10.0 years

Question 13

What are TIPs? Briefly explain.

Accepted Answer

TIPs(Treasury Inflation-Protected Securi

Question 14

A 5-year treasury bond with a coupon rate of 8% has a face value of $1000. What is the semi-annual interest payment?

Accepted Answer

A)  $80 
B)  $40 
C)  $100 
D)  None of the above 
A)  $80 
B)  $40 
C)  $100 
D)  None of the above

Question 15

Discuss the concept of duration.

Accepted Answer

Duration can be thought of as the weight

Question 16

If a bond's volatility is 10% and the interest rate goes down by 0.75% (points) then the price of the bond:

Accepted Answer

A)  decreases by 10% 
B)  decreases by 7.5% 
C)  increases by 7.5% 
D)  increases by 0.75% 
A)  decreases by 10% 
B)  decreases by 7.5% 
C)  increases by 7.5% 
D)  increases by 0.75%

Question 17

The relationship between nominal interest rate and real interest rate is given by: (1 + rnominal) = (1 + rreal)(1 + inflation rate)

Accepted Answer

A) True 
 B)False

The term structure of interest rates can be described as the:

If a bond is paying interest semi-annually, then:

A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is:

A forward rate prevailing from period three through to period four can be: I. readily observed in the market place II. extracted from spot interest rate with 3 and 4 years to maturity III. extracted from 1 and 2 year spot interest rates

Briefly explain the term "yield to maturity."

If the 4-year spot rate is 7% and the 3-year spot rate is 6%, what is the one-year forward rate of interest three years from now?

Forward rates are always higher than spot rates.

The duration of any bond is the same as its maturity.

If the term structure of interest rate is flat the nine-year interest rate is equal to the ten-year interest rate.

The yield to maturity on a bond is really its internal rate of return.

If the 5-year spot rate is 10% and the 4-year spot rate is 9%, what is the one-year forward rate of interest four years from now?

A bond with a face value of $1,000, coupon rate of 0%, yield to maturity of 9%, and ten years to maturity. This bond's duration is:

What are TIPs? Briefly explain.

A 5-year treasury bond with a coupon rate of 8% has a face value of $1000. What is the semi-annual interest payment?

Discuss the concept of duration.

If a bond's volatility is 10% and the interest rate goes down by 0.75% (points) then the price of the bond:

The relationship between nominal interest rate and real interest rate is given by: (1 + rnominal) = (1 + rreal)(1 + inflation rate)

Goals and Governance of the Firm

How to Calculate Present Values

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters

Exam 3: Valuing Bonds

The term structure of interest rates can be described as the:

If a bond is paying interest semi-annually, then:

A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is:

A forward rate prevailing from period three through to period four can be: I. readily observed in the market place II. extracted from spot interest rate with 3 and 4 years to maturity III. extracted from 1 and 2 year spot interest rates

Briefly explain the term "yield to maturity."

If the 4-year spot rate is 7% and the 3-year spot rate is 6%, what is the one-year forward rate of interest three years from now?

Forward rates are always higher than spot rates.

The duration of any bond is the same as its maturity.

If the term structure of interest rate is flat the nine-year interest rate is equal to the ten-year interest rate.

The yield to maturity on a bond is really its internal rate of return.

If the 5-year spot rate is 10% and the 4-year spot rate is 9%, what is the one-year forward rate of interest four years from now?

A bond with a face value of $1,000, coupon rate of 0%, yield to maturity of 9%, and ten years to maturity. This bond's duration is:

What are TIPs? Briefly explain.

A 5-year treasury bond with a coupon rate of 8% has a face value of $1000. What is the semi-annual interest payment?

Discuss the concept of duration.

If a bond's volatility is 10% and the interest rate goes down by 0.75% (points) then the price of the bond:

The relationship between nominal interest rate and real interest rate is given by: (1 + rnominal) = (1 + rreal)(1 + inflation rate)

Goals and Governance of the Firm

How to Calculate Present Values

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters