sampleexam - FINA 363 Exam 2 Sample Exam Questions Bonds:...

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Bonds: Interest Rate Sensitivity ± Yield to Maturity 1. You observe two U.S. Government bonds with the same coupon rates and coupon payment dates. Bond A has a 5 -year maturity, and Bond B has a 1 -year maturity. Suppose the yields (YTMs) for both bonds increase by 1 percent. Bond A (with 5-year maturity) has a than bond B (with 1-year maturity). (a) larger relative price increase (b) larger relative price decrease (c) smaller relative price increase (d) smaller relative price decrease 2. You are considering a bond with 7 years to maturity. The face value of the bond is $1 ; 000 . The coupon rate is 7% (annual payments). The price of the bond is $1 ; 070 . What is the (a) less than 4% (b) between 4% and 5% (c) between 5% and 6% (d) between 6% and 7% (e) higher than 7% Bonds: The Term Structure of Interest Rates 3. Which of the following statements is incorrect ? (a) According to the Liquidity Preference Theory, long term interest rates are higher than short term interest rates because they contain positive maturity premiums. (b) According to the Liquidity Preference Theory, a downward sloping yield curve is typical. (c) The Pure Expectations Theory asserts that the yield curve is explained solely by in- (d) According to the Pure Expectations Theory, a ±at yield curve should be typical. (e) None of the above statements are incorrect. (All of the above statements are correct.) 4. Currently, the one year spot rate is 7 percent per year and the two year spot rate is 6 percent per year. What is the expected one year spot rate starting one year from today under the Pure Expectations Theory? (a) about 4 percent (b) about 5 percent (c) about 6 : 5 percent (d) about 7 percent (e) about 8 percent 1
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Stocks: Foundation 5. You bought a stock for $80 one year ago. Today you received $6 in dividends and then sold the stock for $88 . In this transaction, the return on this stock is and the dividend yield is . (a) 7 : 5 percent; 10 percent (b) 10 percent; 7 : 5 percent (c) 10 percent; 17 : 5 percent (d) 7 : 5 percent; 17 : 5 percent (e) 17 : 5 percent; 7 : 5 percent 6. Which of the following statements is incorrect ? (a) A stock price is a discounted sum of future dividends. (b) Assuming that the issuing corporation is a going concern, a preferred stock (in its most basic form) is an example of perpetuity . (c) A preferred stock (in its most basic form) is an example of a zero
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sampleexam - FINA 363 Exam 2 Sample Exam Questions Bonds:...

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