Bond Valuation And Risk

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Question 1
Free
Multiple Choice

He appropriate discount rate for valuing any bond is the

Choose correct answer/s
A

bond's coupon rate.

B

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

C

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

D

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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A

more difficult than

B

easier than

C

just as difficult as

D

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?

Choose correct answer/s
A

$1,069.31

B

$1,000.00

C

$9712

D

$927.66

E

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 $ ____ .

Choose correct answer/s
A

1,302

B

763

C

761

D

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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A

high yield; appreciates

B

high yield; remains stable

C

low yield; appreciates

D

low yield; depreciates

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Question 6
Multiple Choice

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

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A
high; high
B
high; low
C
low; low
D
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

Choose correct answer/s
A
should be above its par value.
B
should be below its par value.
C
should be equal to its par value.
D
is negligible.
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Question 8
Multiple Choice

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

Choose correct answer/s
A
increase; sell bonds and buy short-term securities
B
increase; sell short-term securities and buy bonds
C
decrease; sell bonds and buy short-term securities
D
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

Choose correct answer/s
A
greater is the premium on the price.
B
greater is the discount on the price.
C
smaller is the premium on the price.
D
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?

Choose correct answer/s
A
$363,212
B
$385,500
C
$422,400
D
$424,100
E
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.

Choose correct answer/s
A
equals; equals
B
exceeds; is less than
C
is less than; is greater than
D
B and C
E
none of the above
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Question 12
Multiple Choice

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

Choose correct answer/s
A
high coupon payments
B
zero coupon payments
C
small coupon payments
D
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.

Choose correct answer/s
A
increase; upward
B
increase; downward
C
decrease; downward
D
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?

Choose correct answer/s
A
-.980
B
0.98
C
-.494
D
0.494
E
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 ____ .

Choose correct answer/s
A
high-coupon bonds; more favorably affected by declining interest rates
B
zero- or low-coupon bonds; more favorably affected by declining interest rates
C
zero- or low-coupon bonds; more favorably affected by rising interest rates
D
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.

Choose correct answer/s
A
low; short
B
low; long
C
high; short
D
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?

Choose correct answer/s
A
13 percent
B
12 percent
C
11 percent
D
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?

Choose correct answer/s
A
$24,113,418
B
$24,667,230
C
$25,000,000
D
$25,891,632
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Question 20
Multiple Choice

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

Choose correct answer/s
A
more volatile than
B
equally volatile as
C
less volatile than
D
A and C occur with about equal frequency
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