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released: Nov 12, 2010 10:00 PM Question 1 Which of the following statements is CORRECT? 1) 2) The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates. The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates. 4 / 4 points

You hold a 10-year, zero coupon, bond and a 10-year bond that has a 6% annual 3) coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline. 4) The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.

You hold a 10-year, zero coupon, bond and a 10-year bond that has a 6% annual 5) coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline. Question 2 4 / 4 points Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds will have the largest percentage increase in price? 1) A 10-year zero coupon bond. 2) A 3-year bond with a 10% coupon. 3) A 1-year bond with a 15% coupon. 4) A 10-year bond with a 10% coupon. 5) An 8-year bond with a 9% coupon. Question 3 4 / 4 points A 12-year bond has an annual coupon rate of 9%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 7%. Which of the following statements is CORRECT? 1) The bond is currently selling at a price below its par value. 2) The bond should currently be selling at its par value. 3) 4) If market interest rates remain unchanged, the bond's price one year from now will be higher than it is today. If market interest rates remain unchanged, the bond's price one year from now will be lower than it is today.

5) If market interest rates decline, the price of the bond will also decline. Question 4 4 / 4 points A 10-year Treasury bond has an 8% coupon, and an 8-year Treasury bond has a 10% coupon. Both bonds have the same yield to maturity. If the yields to maturity of both bonds increase by the same amount, which of the following statements is CORRECT? 1) The prices of both bonds will decrease by the same amount.

10%(t). the bond will sell at par. 0 / 4 points Question 7 Which of the following statements is CORRECT? 1) A discount bond's price declines each year until it matures. 5) If a bond sells for less than par. MRP = 0. when its value equals its par value.50%. i. its price will fall. 4) If a bond sells at par. and a maturity premium of 0. 3) One bonds price will increase.2) Both bonds will decline in price. 5) If the yield to maturity stays constant until the bond matures. 2) The bond's current yield is equal to its coupon rate. 3) The bond's coupon rate exceeds its current yield. Question 8 4 / 4 points Suppose the real risk-free rate is 3. a bond selling for 2) more than par with 10 years to maturity will have a lower current yield and higher capital gain relative to a bond that sells at par. then its yield to maturity is less than its coupon rate. 4) The bond's yield to maturity is greater than its coupon rate. What rate of return would you expect on a 5-year Treasury security. i. then its current yield will be less than its yield to maturity.10% per year to maturity applies.. Question 6 4 / 4 points A 15-year bond with a face value of $1. 4) The prices of the two bonds will remain the same. if averaging is required. Which of the following statements is CORRECT? 1) The bond's current yield exceeds its yield to maturity. 2) 3) If a bond's yield to maturity exceeds its coupon rate. the bond's price will remain at $850. . use the arithmetic average.e. if a bond's yield to maturity increases. 5) The prices of both bonds will increase by the same amount. If a bond's required rate of return exceeds its coupon rate. the average future inflation rate is 2..000 currently sells for $850. the bond will sell at a premium over par. 5) If a bond's yield to maturity exceeds its coupon rate. 3) A bond's current yield must always be between its yield to maturity and its coupon rate. the bond will sell at a premium. where t is the years to maturity. its current yield will fall. Assuming that both bonds are held to maturity and are of equal risk.e. if a bond's yield to maturity increases. but the 10-year bond will have a greater percentage decline in price than the 8-year bond. assuming the pure expectations theory is NOT valid? Disregard cross-product terms. while the other bond's price decreases. Question 5 Which of the following statements is CORRECT? 1) All else equal. 4 / 4 points 4) All else equal.25%.

The correct answer is not displayed for Long Answer type questions.25% 6. 5) Question 11 The yield on a 10-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium. 4) It is impossible to tell without knowing the relative risks of the two securities. a yield to maturity of 8 percent. Question 10 4 / 4 points If the Treasury yield curve is downward sloping. 2) If the expectations theory holds. Hide Feedback . What is the price of the bond? 1075. r*. will remain constant.15% 5. 0 / 8 points A 12-year bond has a 9 percent annual coupon. 2) The yields on the two securities would be equal. 5) If the expectations theory holds. and a face value of $1. 3) The expectations theory cannot hold if inflation is decreasing. the Treasury yield curve must be downward sloping.1) 2) 3) 4) 5) View Feedback 6. the Treasury yield curve must be upward sloping.95% 6. 4) If there is a positive maturity risk premium. but that the real risk-free rate. there can be no maturity risk premium. how would the yield to maturity on a 10-year Treasury coupon bond compare to that on a 1-year T-bill? 1) The yield on a 10-year bond would be less than that on a 1-year bill. 3) It is impossible to tell without knowing the coupon rates of the bonds.05% Question 9 0 / 4 points Assume that inflation is expected to decline steadily in the future.000.36 This question has not been graded. Which of the following statements is CORRECT? 1) If inflation is expected to decline.35% 6. the corporate yield curve must be downward sloping.

What is the bond's current yield and yield to maturity? CY=. $1.0812. this needs to be converted into an effective rate for annual coupon bonds. I = 12/4 = 3. Question 13 0 / 8 points A bond matures in 12 years and pays an 8 percent annual coupon. However. FV = $1000. since the bond is selling at par. this is for semiannual coupon bonds. and then solve for EFF% = 7. Question 12 0 / 8 points A $1. PV = -985.20%. PMT = $35. Step 1: Enter the following data as inputs in your calculator:NOM% = 7. its coupon rate is the nominal annual rate charged in the market. If your nominal annual required rate of return is 12 percent with quarterly compounding. The correct answer is not displayed for Long Answer type questions. YTM=. FV = 1000. Question 14 0 / 8 points A bond with 12 years to maturity has a 7 percent semiannual coupon and a face value of $1.36. P/YR = 2. (That is.000 and currently sells for $985.12%. PMT = 90. Hide Feedback On the first bond.000? 1000 This question has not been graded. So.000 par value bond pays interest of $35 each quarter and will mature in 10 years. What should be the price of a bond with the same risk and maturity that pays a 7 percent annual coupon and has a face value of $1.0819 This question has not been graded.115.) The bond currently sells for $1. The correct answer is not displayed for Long Answer type questions. and then solve for I/YR (YTM) = 8.075. The correct answer is not displayed for Long Answer type questions. The bond has a face value of $1. PV = ?. and then solve for PV = $1. N = 12.1225%.Enter the following input data in the calculator:N = 12. the bond pays a $35 coupon every six months.57 This question has not been graded. Hide Feedback N = 10*4 = 40.075.000.57.000. PMT = 80. VB $1. how much should you be willing to pay for this bond? 1115. FV = 1000. I = 8. Step 2: Use the effective rate calculated . Hide Feedback Current yield is calculated as: $80/$985 = 8.

31. but it can be called in 3 years at a price of $1.9508%.250 and it is callable in 5 years at a call price of $1.5.000 = 70.250 and it is callable in 5 years at a call price of $1.9508% x 2 = 5.1225. PMT = 45. FV = 1000. PMT = 50.58. PV = -1250. The correct answer is not displayed for Long Answer type questions. a 9% coupon paid semiannually.000 par value. What is the bond's nominal yield to call? 5.000 par value.33.000 par value. I = 7. Question 16 0 / 8 points A 15-year.24% This question has not been graded. I/YR =? 3.above to solve for the price of the second bond.The nominal YTC is 2.31% x 2 = 4. YTC = 2.62%. and then solve for PV = -$990. and 3year Treasury securities yield 6 percent.9% This question has not been graded. The bond has a 7% nominal yield to maturity. $1. VB = $990. and a $1. Question 17 0 / 8 points Walker Industries has a bond outstanding with 12 years to maturity. What does the market expect will be the yield on 1-year Treasury securities two years from now? 6. PV = -1250. PMT = 90/2 = 45.62% This question has not been graded. I/YR =?2. 10% semiannual coupon bond has a price of $1.62% Question 18 0 / 8 points One-year Treasury securities yield 5 percent.The nominal YTM is 3. 10% semiannual coupon bond has a price of $1.24%.62% x 2 = 7. PMT = 0. PMT = 50. Question 15 0 / 8 points A 15-year. $1. PV =? -1160. 2-year Treasury securities yield 5.07 1. I/Y = 7/2 = 3.54% This question has not been graded. . Hide Feedback N = 12x2 = 24.90%. FV = 1045. What is the bond's nominal yield to maturity? 7. The correct answer is not displayed for Long Answer type questions. The correct answer is not displayed for Long Answer type questions. Hide Feedback N = 30. What is the bond's nominal yield to call? 4.050. which is an annual coupon bond:N = 12. FV = 1100.5 percent. Hide Feedback N = 10. Assume that the expectations theory holds.58 N = 3 x 2 = 6. I/Y = 2. FV = 1000.33. PV = -1160.045.100. FV = 1000.

06)3 = (1+0.The correct answer is not displayed for Long Answer type questions. .113025) – 1 = 7%.191016 / 1. Hide Feedback (1+0. i = (1.055)2 x (1+i).

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