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Chapter_4

# Chapter_4 - CHAPTER 6 BONDS AND THEIR VALUATION(Difficulty...

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Medium: Bond yield Answer: c Diff: M 5 . Which of the following statements is most correct? a. The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B. b. If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity. c. If a coupon bond is selling at par, its current yield equals its yield to maturity. d. Both a and b are correct. e. Both b and c are correct. Price risk Answer: c Diff: M 6 . Which of the following has the greatest price risk? a. A 10-year, \$1,000 face value, 10 percent coupon bond with semiannual interest payments. b. A 10-year, \$1,000 face value, 10 percent coupon bond with annual interest payments. c. A 10-year, \$1,000 face value, zero coupon bond. d. A 10-year \$100 annuity. e. All of the above have the same price risk since they all mature in 10 years. Price risk Answer: a Diff: M 7 . If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value? a. A 10-year zero coupon bond. b. A 10-year bond with a 10 percent semiannual coupon. c. A 10-year bond with a 10 percent annual coupon.
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Chapter_4 - CHAPTER 6 BONDS AND THEIR VALUATION(Difficulty...

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