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Practice Questions (Chapter 4)

Practice Questions (Chapter 4) - 10.The current yield...

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Econ 500 – SFSU Handout 2 – Questions ch.4 Z. Janko Fall 2011 True/False/Uncertain. l. The present value (PV) of a given future amount = X, is always greater than X. 2. The larger the n (term to maturity), the lower the PV of a future value. 3. The relationship between PV of a fixed payment loan and yield to maturity (i) is negative as long as FP (fixed payments) are fixed. 4. The relationship between LV (loan value) and PV is positive. 5. If the FP increases and LV and n stay fixed, then the yield to maturity must fall. 6. If the Coupon payments (C) of a coupon bond with maturity n=l0 and a given FV = 1000 increases, then the yield to maturity stays unchanged as long as the price of the bond is unchanged. 7. The relationship between the PV of a coupon bond and i is negative as long as C, FV and P (of bonds) is fixed. 8. The coupon rate always equals the current yield for a coupon bond. 9. The relationship between the yield to maturity and the current yield on a coupon bond is negative.
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Unformatted text preview: 10.The current yield always equals the yield to maturity on a consol bond. 11. If a coupon bond sells at par, then the yield to maturity equals the coupon rate. 12. Price of bonds and the yield to maturity are negatively related only for n>1. 13. The farther today’s price of a bond is from par, the better the current yield approximates the yield to maturity. 14. The future price of a coupon bond is just as uncertain as the future price on a discount bond. 15.T he relationship between the future price and capital gains today on a discount bond is always positive. 16. The relationship between i and the capital gains on a discount bond is always negative. 17. The return on a consol bond rises as future bond price rises, but falls as today's bond price increases. 18.T he yield to maturity always equals the return on bonds....
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