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ch17(2) - Chapter 17 BOND YIELDS AND PRICES Multiple Choice...

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Chapter 17 BOND YIELDS AND PRICES Multiple Choice Questions Bond Yields 1. One percentage point of a bond yield represents: a. 1 basis point b. 10 basis points c. 100 basis points d. 1000 basis points (c, easy) 2. Subtracting the inflation rate from the market interest rate results in an approximate: (b, moderate) 3. For risk-free securities, the nominal interest rate is a function of: (c, moderate) 4. Under the Fisher hypothesis, if a one point increase in the inflation rate is anticipated: (a, moderate) Chapter Eight Bond Yields and Prices 215
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5. Which of the following regarding the current yield on a bond is not true? a. The current yield is superior to the coupon rate because it uses market price instead of face value. b. The current yield is reported daily in The Wall Street Journal. c. The current yield does not account for difference between purchase price and redemption value. d. The current yield shows the bond’s expected rate of return if held to maturity. (d, moderate) 6. The yield to maturity consists solely of interest income if: (b, easy) 7. In order to have a yield to maturity greater than the coupon rate, the bond must be: (a, easy) 8. Typically, a yield to call calculation will use: (c, moderate) 9. When interest rates rise, a. bond prices rise. b. bond prices fall. c. prices of newly issued bonds are lowered. d. interest rates of existing bonds are raised. (b, easy) Chapter Eight Bond Yields and Prices 216
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