Practice Questions_ Fixed Income Securities_Spring_2010

Practice Questions_ Fixed Income Securities_Spring_2010 -...

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FINC 414 Investments Practice Questions for Fixed Income Securities Spring 2010 1. When discussing bonds, convexity relates to the ________. A) shape of the bond price curve B) shape of the yield curve C) slope of the yield curve D) shape of the bond dealer 2. The primary difference between Treasury notes and bonds is _________. A) maturity at issue B) default risk C) coupon rate D) tax status 3. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pay interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, __________. A) both bonds will increase in value but bond A will increase more than bond B B) both bonds will increase in value but bond B will increase more than bond A C) both bonds will decrease in value but bond A will decrease more than bond B D) both bonds will decrease in value but bond B will decrease more than bond A You deposit $1,000 in a bank for one month. The annual interest rate is 10%.(This is for questions 4 through 5) 4. What is your account balance at the end of one month if bank pays interest four times per month? a)1007.56 b)1008.23 c)1008.35 d) 1008.98 5. What is your account balance at the end of one month if bank pays interest continuously? a) 1000*exp(0.1/365) b) 1000*exp(0.1/12) c) 1000*exp(0.1/6) d)1000*exp(0.1/2)
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6. A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of __________ today. A) $458.00 B) $641.00 C) $789.00 D) $1,100.00 7. A 1% decline in yield will have the least effect on the price of the bond with a __________. A) 10-year maturity, selling at 80 B) 10-year maturity, selling at 100 C) 20-year maturity, selling at 80 D) 20-year maturity, selling at 100 8. Consider a 7-year bond with a 9% coupon and a present yield to maturity of 12%. If interest rates remain constant, one year from now the price of this bond will be __________. A) higher B) lower C) the same D) cannot be determined 9. The yield to maturity on a bond is __________. A) above the coupon rate when the bond sells at a discount, and below the coupon rate when the bond sells at a premium B) the discount rate that will set the present value of the payments equal to the bond price C) equal to the true compound return on investment only if all interest payments
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This note was uploaded on 04/13/2010 for the course FINANCE 414 taught by Professor Finance during the Spring '10 term at Abraham Baldwin Agricultural College.

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Practice Questions_ Fixed Income Securities_Spring_2010 -...

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