Chapter_18_-_Study_Guide - Chapter 18 BONDS: ANALYSIS AND...

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Chapter Eighteen Bonds: Analysis and Strategy 228 Chapter 18 BONDS: ANALYSIS AND STRATEGY Multiple Choice Questions Why Buy Bonds? 1. Bond investors can avoid the risk that interest rates will rise and drive bond prices down by: a. buying zero coupon bonds. b. buying Treasury bonds. c. holding bonds over one year. d. holding bonds till maturity. (d) 2. Which of the following is not a reason U.S.investors invest in foreign bonds? a. to gain diversification b. potentially higher returns than U.S. bonds c. lower transactions costs and taxes. d. All of the above are reasons U.S. investors invest in foreign bonds. (c) 3. The introduction of the Euro is expected to: a. increase the transactions cost of trading foreign bonds. b. decrease the transactions cost of trading foreign bonds. c. have no effect on the transactions cost of trading foreign bonds. d. have a minimal effect on the transactions cost of trading foreign bonds. (b) Important Considerations in Managing a Bond Portfolio 4. Which of the following is considered to have the biggest impact on bond yields? a. economic growth b. business cycles c. inflation d. Federal Reserve actions (c)
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Chapter Eighteen Bonds: Analysis and Strategy 229 5. The term structure of interest rates is also known as the: a. yield to maturity. b. probability distribution. c. yield differential. d. yield curve. (d) 6. Under the expectations theory, investors expecting interest rates to rise will: b. invest more now in short term bonds rather than in long term bonds. c. invest more now in long term bonds rather than in short term bonds. d. invest more now in Treasury bonds rather than in corporate bonds. e. invest more now in corporate bonds rather than in Treasury bonds. (a) 7. Which of the following yield curve theories expect investors to stay in one maturity segment, regardless of opportunities in other maturity segments? a. expectations theory b. liquidity preference theory c. market segmentation theory d. preferred habitat theory (c) 8. Since the 1930s, the yield curve most likely to be seen has been the: a. upward sloping yield curve. b. downward sloping yield curve. c. flat yield curve. d. skewed yield curve. (a) 9. An inverted yield curve or flattening of the yield curve is considered a good predictor of a: a. rising economy. b. recession. c. depression. d. stock market crash. ( b)
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Chapter Eighteen Bonds: Analysis and Strategy 230 10. Which of the following is not a reason for a yield spread? a. differences in call features. b. differences in coupon rates. c. differences in maturity d. differences in quality. (c ) 11. Investors would expect a higher yield on a smaller, regional corporate bond than on a large, national corporate bond mainly due to: a. differences in coupon rates. b.
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter_18_-_Study_Guide - Chapter 18 BONDS: ANALYSIS AND...

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