Chapter 17
BOND YIELDS AND PRICES
Multiple Choice Questions
Bond Yields
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
2.
Subtracting the inflation rate from the market interest rate results in an
approximate:
a.
inflationadjusted rate of interest
b.
real riskfree rate of interest
c.
real risky rate of interest
d.
inflationadjusted yield
3.
For riskfree securities, the nominal interest rate is a function of:
a.
actual and expected inflation rates
b.
expected inflation rate and expected return
c.
real rate of interest and expected inflation rate
d.
market rate of return and real rate of interest
4.
Under the Fisher hypothesis, if a one point increase in the inflation rate is
anticipated:
a.
nominal rates on shortterm securities would rise by one point.
b.
nominal rates on shortterm securities would fall by one point.
c.
nominal rates on shortterm securities would fall by less than one point.
d.
nominal rates on shortterm securities would rise by less than one point.
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.
Chapter Eight
Bond Yields and Prices
215
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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.
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.
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.
9.
When interest rates rise,
a.
bond prices rise.
b.
bond prices fall.
c.
prices of newly issued bonds are lowered.
d.
interest rates of existing bonds are raised.
10.
If a bond is callable, this means:
a.
the issuer may change the coupon rate.
b.
the investor may convert the bond into stock.
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 Fall '11
 Moore
 a. b. c., b. c. d.

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