Bond Valuation And Risk

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Question 1

Free

Multiple Choice

He appropriate discount rate for valuing any bond is the

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bond's coupon rate.

bond's coupon rate adjusted for the expected inflation rate over the life of the bond.

Treasury bill rate with an adjustment to include a risk premium if one exists.

yield that could be earned on alternative investments with similar risk and maturity.

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Question 2

Free

Multiple Choice

The valuation of bonds is generally perceived to be ____ the valuation of equity securities.

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more difficult than

easier than

just as difficult as

none of the above

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Question 3

Free

Multiple Choice

A bond with a $1,000 par value has an 8 percent annual coupon rate. It will mature in 4 years, and annual coupon payments are made at the end of each year. Present annual yields on similar bondsare 6 percent. What should be the current price?

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$1,069.31

$1,000.00

$9712

$927.66

none of the above

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Question 4

Free

Multiple Choice

A bond with a 12 percent quarterly coupon rate has a yield to maturity of 16 percent. The bond has a par value of $1,000 and matures in 20 years. Based on this information, a fair price of thisbond is $ ____ .

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1,302

763

761

1,299

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Question 5

Free

Multiple Choice

From the perspective of investing institutions, the most attractive foreign bonds offer a and are denominated in a currency that over the investment horizon.

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high yield; appreciates

high yield; remains stable

low yield; appreciates

low yield; depreciates

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Question 6

Multiple Choice

The value of -risk securities will be relatively .

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high; high

high; low

low; low

none of the above

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Question 7

Multiple Choice

If the coupon rate equals the required rate of return, the price of the bond

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should be above its par value.

should be below its par value.

should be equal to its par value.

is negligible.

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Question 8

Multiple Choice

When financial institutions expect interest rates to , they may .

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increase; sell bonds and buy short-term securities

increase; sell short-term securities and buy bonds

decrease; sell bonds and buy short-term securities

B and C

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Question 9

Multiple Choice

For a bond of a given par value, the higher the investor's required rate of return is above the coupon rate, the

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greater is the premium on the price.

greater is the discount on the price.

smaller is the premium on the price.

smaller is the discount on the price.

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Question 10

Multiple Choice

Zero-coupon bonds with a par value of $1,000,000 have a maturity of 10 years and a required rate of return of 9 percent. What is the current price?

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$363,212

$385,500

$422,400

$424,100

none of the above

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Question 11

Multiple Choice

If the coupon rate the required rate of return, the price of a bond par value.

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equals; equals

exceeds; is less than

is less than; is greater than

B and C

none of the above

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Question 12

Multiple Choice

The prices of bonds with ____ are most sensitive to interest rate movements.

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high coupon payments

zero coupon payments

small coupon payments

none of the above (The size of the coupon payment does not affect the sensitivity of bond prices to interest rate movements.)

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Question 13

Multiple Choice

in the expected level of inflation results in pressure on bond prices.

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increase; upward

increase; downward

decrease; downward

none of the above

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Question 14

True/False

Other things held constant, bond prices should increase when inflationary expectations rise.

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True

False

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Question 15

Multiple Choice

Assume that the price of a $1,000 zero-coupon bond with five years to maturity is $567 when the required rate of return is 12 percent. If the required rate of return suddenly changes to 15 percent, what is the price elasticity of the bond?

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-.980

0.98

-.494

0.494

none of the above

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Question 16

Multiple Choice

If a financial institution's bond portfolio contains a relatively large portion of , it will be .

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high-coupon bonds; more favorably affected by declining interest rates

zero- or low-coupon bonds; more favorably affected by declining interest rates

zero- or low-coupon bonds; more favorably affected by rising interest rates

high-coupon bonds; completely insulated from rising interest rates

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Question 17

Multiple Choice

The prices of -coupon bonds and bonds with maturities are most sensitive to changes in the required rate of return.

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low; short

low; long

high; short

high; long

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Question 18

Multiple Choice

A $1,000 par bond with five years to maturity is currently priced at $892. Annual interest payments are $90. What is the yield to maturity?

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13 percent

12 percent

11 percent

10 percent

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Question 19

Multiple Choice

A bank buys bonds with a par value of $25 million for $24,040,000. The coupon rate is 10 percent, and the bonds make annual payments. The bonds mature in four years. The bank wants to sell themin two years and estimates the required rate of return in two years will be 8 percent. What will the market value of the bonds be in two years?

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$24,113,418

$24,667,230

$25,000,000

$25,891,632

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Question 20

Multiple Choice

The prices of short-term bonds are commonly ____ those of long-term bonds.

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more volatile than

equally volatile as

less volatile than

A and C occur with about equal frequency

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Bond Valuation And Risk

He appropriate discount rate for valuing any bond is the

The valuation of bonds is generally perceived to be ____ the valuation of equity securities.

A bond with a $1,000 par value has an 8 percent annual coupon rate. It will mature in 4 years, and annual coupon payments are made at the end of each year. Present annual yields on similar bondsare 6 percent. What should be the current price?

A bond with a 12 percent quarterly coupon rate has a yield to maturity of 16 percent. The bond has a par value of $1,000 and matures in 20 years. Based on this information, a fair price of thisbond is $ ____ .

From the perspective of investing institutions, the most attractive foreign bonds offer a ____ and are denominated in a currency that ____ over the investment horizon.

The value of ____ -risk securities will be relatively ____ .

If the coupon rate equals the required rate of return, the price of the bond

When financial institutions expect interest rates to ____ , they may ____ .

For a bond of a given par value, the higher the investor's required rate of return is above the coupon rate, the

Zero-coupon bonds with a par value of $1,000,000 have a maturity of 10 years and a required rate of return of 9 percent. What is the current price?

If the coupon rate ____ the required rate of return, the price of a bond ____ par value.

The prices of bonds with ____ are most sensitive to interest rate movements.

____ in the expected level of inflation results in ____ pressure on bond prices.

Other things held constant, bond prices should increase when inflationary expectations rise.

Assume that the price of a $1,000 zero-coupon bond with five years to maturity is $567 when the required rate of return is 12 percent. If the required rate of return suddenly changes to 15 percent, what is the price elasticity of the bond?

If a financial institution's bond portfolio contains a relatively large portion of ____ , it will be ____ .

The prices of ____ -coupon bonds and bonds with ____ maturities are most sensitive to changes in the required rate of return.

A $1,000 par bond with five years to maturity is currently priced at $892. Annual interest payments are $90. What is the yield to maturity?

The prices of short-term bonds are commonly ____ those of long-term bonds.

From the perspective of investing institutions, the most attractive foreign bonds offer a and are denominated in a currency that over the investment horizon.

The value of -risk securities will be relatively .

When financial institutions expect interest rates to , they may .

If the coupon rate the required rate of return, the price of a bond par value.

in the expected level of inflation results in pressure on bond prices.

If a financial institution's bond portfolio contains a relatively large portion of , it will be .

The prices of -coupon bonds and bonds with maturities are most sensitive to changes in the required rate of return.