Question 1

The required rate of return on a bond is

Accepted Answer

A) the interest rate that equates the current market price of the bond with the present value of all future cash flows received. 
B) equivalent to the current yield for nonpar bonds. 
C) less than the E(r)for discount bonds and greater than the E(r)for premium bonds. 
D) inversely related to a bond's risk and coupon. 
E) None of these choices are correct. 
A) the interest rate that equates the current market price of the bond with the present value of all future cash flows received. 
B) equivalent to the current yield for nonpar bonds. 
C) less than the E(r)for discount bonds and greater than the E(r)for premium bonds. 
D) inversely related to a bond's risk and coupon. 
E) None of these choices are correct.

Question 2

The higher the interest rate is the higher the duration,all else being equal.

Accepted Answer

A) True 
 B)False

Question 3

A bond that pays interest annually has a 6 percent promised yield and a price of $1,025. Annual interest rates are now projected to fall 50 basis points. The bond's duration is six years. What is the predicted new bond price after the interest rate change? (Watch your rounding.)

Accepted Answer

A) $1,042.33 
B) $995.99 
C) $1,054.01 
D) $987.44 
E) None of these choices are correct. 
A) $1,042.33 
B) $995.99 
C) $1,054.01 
D) $987.44 
E) None of these choices are correct.

Question 4

An eight-year corporate bond has a 7 percent coupon rate. What should be the bond's price if the required return is 6 percent and the bond pays interest semiannually?

Accepted Answer

A) $1,062.81 
B) $1,062.10 
C) $1,053.45 
D) $1,052.99 
E) $1,049.49 
A) $1,062.81 
B) $1,062.10 
C) $1,053.45 
D) $1,052.99 
E) $1,049.49

Question 5

Ignoring default risk,if a bond's expected return is greater than its required return,then the bond's market price must be greater than the present value of the bond's cash flows.

Accepted Answer

A) True 
 B)False

Question 6

If interest rates increase,the value of a fixed income contract decreases and vice versa.

Accepted Answer

A) True 
 B)False

Question 7

The duration of a 180-day T-Bill is (in years)

Accepted Answer

A) 0.493. 
B) 0.246. 
C) 1. 
D) 0. 
E) indeterminate. 
A) 0.493. 
B) 0.246. 
C) 1. 
D) 0. 
E) indeterminate.

Question 8

A 12-year annual payment corporate bond has a market price of $925. It pays annual interest of $60 and its required rate of return is 7 percent. By how much is the bond mispriced?

Accepted Answer

A) $0.00 
B) Overpriced by $7.29 
C) Underpriced by $7.29 
D) Overpriced by $4.43 
E) Underpriced by $4.43 
A) $0.00 
B) Overpriced by $7.29 
C) Underpriced by $7.29 
D) Overpriced by $4.43 
E) Underpriced by $4.43

Question 9

An annual payment bond with a $1,000 par has a 5 percent quoted coupon rate,a 6 percent promised YTM,and six years to maturity. What is the bond's duration?

Accepted Answer

A) 5.31 years 
B) 5.25 years 
C) 4.76 years 
D) 4.16 years 
E) 3.19 years 
A) 5.31 years 
B) 5.25 years 
C) 4.76 years 
D) 4.16 years 
E) 3.19 years

Question 10

You have five years until you need to take your money out of your investments to make a planned expenditure. Right now bonds are promising an 8 percent return. You buy a five-year duration bond. After you buy the bond,interest rates fall to 6 percent and stay there for the full five years. You reinvest the coupons and earn 6 percent. Will your realized return be more or less than the originally promised 8 percent? Explain.

Accepted Answer

You will earn the promised 8 percent ret

Question 11

A six-year maturity bond has a five-year duration. Over the next year maturity will decline by one year and duration will decline by

Accepted Answer

A) less than one year. 
B) more than one year. 
C) one year. 
D) N years. 
E) N/(N − 1)years. 
A) less than one year. 
B) more than one year. 
C) one year. 
D) N years. 
E) N/(N − 1)years.

Question 12

Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond. The premium bond must have a greater expected return than the discount bond.

Accepted Answer

A) True 
 B)False

The required rate of return on a bond is

The higher the interest rate is the higher the duration,all else being equal.

A bond that pays interest annually has a 6 percent promised yield and a price of $1,025. Annual interest rates are now projected to fall 50 basis points. The bond's duration is six years. What is the predicted new bond price after the interest rate change? (Watch your rounding.)

An eight-year corporate bond has a 7 percent coupon rate. What should be the bond's price if the required return is 6 percent and the bond pays interest semiannually?

Ignoring default risk,if a bond's expected return is greater than its required return,then the bond's market price must be greater than the present value of the bond's cash flows.

If interest rates increase,the value of a fixed income contract decreases and vice versa.

The duration of a 180-day T-Bill is (in years)

A 12-year annual payment corporate bond has a market price of $925. It pays annual interest of $60 and its required rate of return is 7 percent. By how much is the bond mispriced?

An annual payment bond with a $1,000 par has a 5 percent quoted coupon rate,a 6 percent promised YTM,and six years to maturity. What is the bond's duration?

A six-year maturity bond has a five-year duration. Over the next year maturity will decline by one year and duration will decline by

Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond. The premium bond must have a greater expected return than the discount bond.

Introduction

Determinants of Interest Rates

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Exam 3: Interest Rates and Security Valuation

The required rate of return on a bond is

The higher the interest rate is the higher the duration,all else being equal.

A bond that pays interest annually has a 6 percent promised yield and a price of $1,025. Annual interest rates are now projected to fall 50 basis points. The bond's duration is six years. What is the predicted new bond price after the interest rate change? (Watch your rounding.)

An eight-year corporate bond has a 7 percent coupon rate. What should be the bond's price if the required return is 6 percent and the bond pays interest semiannually?

Ignoring default risk,if a bond's expected return is greater than its required return,then the bond's market price must be greater than the present value of the bond's cash flows.

If interest rates increase,the value of a fixed income contract decreases and vice versa.

The duration of a 180-day T-Bill is (in years)

A 12-year annual payment corporate bond has a market price of $925. It pays annual interest of $60 and its required rate of return is 7 percent. By how much is the bond mispriced?

An annual payment bond with a $1,000 par has a 5 percent quoted coupon rate,a 6 percent promised YTM,and six years to maturity. What is the bond's duration?

A six-year maturity bond has a five-year duration. Over the next year maturity will decline by one year and duration will decline by

Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond. The premium bond must have a greater expected return than the discount bond.

Introduction

Determinants of Interest Rates

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters