1. What is price risk/interest rate risk of a bond?
A. The risk of a decline in a bond’s price due to an decrease in interest rate
B. The risk of an increase in a bond’s price due to an decrease in interest rate
C. The risk of a decline in a bond’s price due to an increase in interest rate
D. The risk of an increase in a bond’s price due to an increase in interest rate
E. None of the above
2. What is reinvestment risk of a bond?
A. The risk that an increase in interest rates will lead to a decline in income from a bond portfolio.
B. The risk that a decline in interest rates will lead to a decline in income from a bond portfolio.
C. The risk that a decline in interest rates will lead to an increase in income from a bond portfolio.
D. The risk that an increase in interest rates will lead to an increase in income from a bond portfolio
E. None of the above.
3. A Treasury bond has an 8% annual coupon and a 10% yield to maturity. Which of the following statements is CORRECT?
A. The bond sells at a premium.
B. The bond sells at a discount.
C. If the yield to maturity remains constant, the price of the bond will decline over time.
D. None of the above
4. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is CORRECT?
A. If the bond’s yield to maturity declines, the bond will sell at a discount.
B. The bond’s current yield is less than its expected capital gains yield.
C. Market Interest rate on the bond is 9%.
D. Can not be determined from the information given.
5. What is the relationship between yield to maturity, current yield and capital gains yield?
A. Yield to maturity=current yield - capital gains yield
B. Yield to maturity= capital gains yield - current yield
C. Yield to maturity=current yield + capital gains yield
D. Yield to maturity= capital gains yield E. None of the above.
6. What is the value of a 10-year, 15% annual coupon bond, if rd = 15%?
A. 1000
B. 1057
C. 1034
D. 998
E. 987
7. What is the value of a 10-year, 10% semiannual coupon bond, if rd = 16%?
A. 705
B. 834
C. 872
D. 791
E. 988