1. List the following securities by their level of credit risk (list the most risky first): Corporate Bond (rated AA), Corporate Bond (rated BB), Federal Agency Bond, Treasury Bonds.
A. Treasury, Corporate (rated AA), Corporate (rated BB), Federal Agency
B. Treasury, Federal Agency, Corporate (rated AA), Corporate (rated BB)
C. Corporate (rated AA), Federal Agency, Corporate (rated BB), Treasury
D. Corporate (rated BB), Corporate (rated AA), Federal Agency, Treasury
2. Macaulay duration is longest for __________.
A. zero-coupon 30-year bonds
B. low-coupon 30-year bonds
C. none of the above
D. high-coupon 30-year bonds
3. Modified duration measures the sensitivity of bond prices to changes in __________.
A. time to maturity
B. the level of investor wealth
C. current yield
D. market interest rates
4. The common stock of Bike Tours, Inc. pays no dividend, and has a market price of $80 per share. Bike Tours' 8% ($80 annual coupon) convertible bond sells at 128% of the par value ($1280), and is convertible into common at a stock price of $100 per share. The conversion premium for Bike Tours' convertible bond is __________.
A. $800
B. $280
C. $1000
D. $480