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Exam 10: Bond Prices and Yields

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Question 1

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According to the liquidity preference theory of the term structure of interest rates an increase in the yield on long term corporate bonds versus short term bonds could be due to _______.

A) declining liquidity premiums
B) expectation of an upcoming recession
C) a decline in future inflation expectations
D) increase in expected interest rate volatility

E) B) and C)
F) C) and D)

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Question 2

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A collateral trust bond is _______.

A) secured by other securities held by the firm
B) secured by equipment owned by the firm
C) secured by property owned by the firm
D) unsecured

E) All of the above
F) C) and D)

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A

Question 3

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Everything else equal the __________ the maturity of a bond and the __________ the coupon the greater the sensitivity of the bond's price to interest rate changes.

TIPS are an example of _______________.

$1,000 par value zero coupon bonds, ignore liquidity premiums -The __________ of a bond is computed as the ratio of coupon payments to market price.

__________ are examples of synthetically created zero coupon bonds.

A treasury bond due in one year has a yield of 6.3% while a treasury bond due in 5 years has a yield of 8.8%.A bond due in 5 years issued by High Country Marketing Corporation has a yield of 9.6% while a bond due in one year issued by High Country Marketing Corporation has a yield of 6.8%.The default risk premiums on the one-year and 5-year bonds issued by High Country Marketing Corp.are respectively __________ and _________.

Everything else equal _________ bonds will require a higher promised YTM than ________ bonds.

A coupon bond which pays interest annually,has a par value of $1,000,matures in 5 years and has a yield to maturity of 12%.If the coupon rate is 9%,the intrinsic value of the bond today will be approximately _________.

The ___________ is the document defining the contract between the bond issuer and the bondholder.

A debenture is _________.

The issuer of a/an ________ bond may choose to pay interest either in cash or in additional bonds.

Inflation-indexed Treasury securities are commonly called ____.

On May 1, 2007, Joe Hill is considering one of the following newly-issued 10 year AAA corporate bonds. -If interest rates are expected to rise,then Joe Hill should ____.

A discount bond that pays interest semiannually will ______. I.have a lower price than an equivalent annual payment bond II.have a higher EAR than an equivalent annual payment bond III.sell for less than its conversion value

Floating rate bonds have a __________ that is adjusted with current market interest rates.

Which of the following bonds would most likely sell at the lowest yield?

On May 1, 2007, Joe Hill is considering one of the following newly-issued 10 year AAA corporate bonds. -Suppose market interest rates decline by 100 basis points (i.e.,1%) .The effect of this decline would be:

Consider a 7-year bond with a 9% coupon and a yield to maturity of 12%.If interest rates remain constant,one year from now the price of this bond will be _________.

TIPS offer investors inflation protection by ______________ by the inflation rate each year.