bonds1 - CH. 17, Chapter 17: Bond Yields and Prices...

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CH. 17, Chapter 17: Bond Yields and Prices Multiple Choice Questions 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 Ans: c Difficulty: easy Ref: Bond Yields 2. Subtracting the inflation rate from the market interest rate results in an approximate: a. inflation-adjusted rate of interest b. real risk-free rate of interest c. real risky rate of interest d. inflation-adjusted yield Ans: b Difficulty: moderate Ref: Bond Yields 3. A graphical depiction of the term structure of interest rates is known as: a. convexity b. Fischer curve c. yield curve d. duration Ans: c Difficulty: moderate Ref: Bond Yields 4. Under the Fisher hypothesis, if a one point increase in the inflation rate is anticipated: Chapter Eight Bond Yields and Prices 215
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a. nominal rates on short-term securities would rise by one point. b. nominal rates on short-term securities would fall by one point. c. nominal rates on short-term securities would fall by less than one point. d. nominal rates on short-term securities would rise by less than one point. Ans: a Difficulty: moderate Ref: Bond Yields 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. Ans: d Difficulty: moderate Ref: Bond Yields 6. The yield to maturity consists solely of interest income if: a. the bond is a zero coupon bond. b. the bond was purchased at par. c. the bond was purchased above par. d. the bond was purchased below par. Ans: b Difficulty: easy Ref: Bond Yields 7. In order to have a yield to maturity greater than the coupon rate, the bond must be: a. selling at a discount. b. selling at par. c. selling at a premium. d. a zero coupon bond. Ans: a Difficulty: easy Chapter Eight Bond Yields and Prices 216
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Ref: Bond Yields 8. Typically, a yield to call calculation will use: a. market interest rates rate than the coupon rate. b. current market price rather than the maturity value. c. the end of the deferred call period rather than remaining years on the term. d. all of the above will be used. Ans: c Difficulty: moderate Ref: Bond Yields 9. All of the following will affect a bond’s risk premium, i.e. yield spread, EXCEPT: a. time to maturity. b. par value of the bonds. c. risk of default. d. liquidity of the issue. Ans: b Difficulty: easy Ref: Bond Yields 10. If a bond is callable, this means: a. the issuer may change the coupon rate. b.
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bonds1 - CH. 17, Chapter 17: Bond Yields and Prices...

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