Investments Test 3

A coupon bond which pays interest semi-annually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 6%. If the coupon rate is 7%, the intrinsic value of the bond today will be __________ (to the nearest dollar).

$1,063

A bond with a 9-year duration is worth $1,080.00 and its yield to maturity is 8%. If the yield to maturity falls to 7.84%, you would predict that the new value of the bond will be _________.

$1,094

You have a 25 year maturity 10% coupon, 10% yield bond with duration of 10 years and a convexity of 135.50. If interest rate were to fall 125 basis points your predicted new price for the bond (including convexity) is _________.

$1124.20

A bond pays a semi-annual coupon and the last coupon was paid 61 days ago. There are 182 days between the last coupon date and the next coupon date. If the annual coupon payment is $75, what is the accrued interest?

$12.57

You have a 15 year maturity 4% coupon, 6% yield bond with duration of 10.5 years and a convexity of 128.75. The bond is currently priced at $805.76. If interest rate were to increase 200 basis points your predicted new price for the bond (including convexity) is _________.

$666.88

If the quote for a Treasury bond is listed in the newspaper as 98:09 bid, 98:13 ask, the actual price for you to purchase this bond given a $10,000 par value is

$9,840.63

Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1,000 and a required return of 12% would be priced at _________.

$97

Where Y = yield to maturity, the duration of a perpetuity would be

(1 + Y)/Y

An 8%, 30-year bond has a yield-to-maturity of 10% and a modified duration of 8.0 years. If the market yield drops by 15 basis points, there will be a __________ in the bond's price

1.20% increase

A bond has a yield to maturity of 8% and a duration of 9 years. If the yield to maturity falls to 7.84%, there will be a ________in the bond's price.

1.33% increase

If the price of a $10,000 par Treasury bond is $10,237.50 the quote would be listed in the newspaper as

102:12

A bond pays annual interest. Its coupon rate is 8%. Its value at maturity is $1,000. It matures in three years. Its yield to maturity is currently 10%. The duration of this bond is _______ years.

2.78 years

To create a portfolio with a duration of 4 years using a 5 year zero-coupon bond and a 3 year 8% annual coupon bond with a yield to maturity of 10%, one would have to invest ________ of the portfolio value in the zero-coupon bond.

55%

A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is _________.

6.49%

A corporate bond has a 10 year maturity and pays interest semiannually. The quoted coupon rate is 6% and the bond is priced at par. The bond is callable in 3 years at 110% of par. What is the bond's yield to call?

8.98%

One, two and three year maturity, default-free, zero-coupon bonds have yields-to-maturity of 7%, 8% and 9% respectively. What is the implied one-year forward rate in the second year?

9.0%

A coupon bond which pays interest of 4% annually, has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is _________.

9.6%

Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________.

Eurobonds

Immunization of coupon paying bonds is not a passive strategy because I. the portfolio must be rebalanced every time interest rates change II. the portfolio must be rebalanced over time even if interest rates don't change III. convexity implies duration based immunization strategies don't work

I and II only

Advantages of cash flow matching and dedicated strategies include ______. I. once the cash flows are matched there is no need for rebalancing II. cash flow matching typically earns a higher rate of return than active bond portfolio management III. financial institution's liabilities often exceed the maturity of available bonds, making cash matching even more desirable

I only

A __________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

Puttable

Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require _________.

a higher yield on long term bonds than short term bonds

Because of convexity, when interest rates change, the actual bond price will ____________ the bond price predicted by duration.

always be higher than

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, _________.

both bonds will decrease in value but bond B will decrease more than bond A

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

coupon rate

Under the pure expectations hypothesis and constant real interest rates for different maturities, an upward sloping yield curve would indicate __________________.

expected increases in inflation over time

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

higher

The bonds of Elbow Grease Dishwashing Company have received a rating of "C" by Moody's. The "C" rating indicates the bonds are _________.

junk bonds

All other things equal, a bond's duration is _________.

lower when the coupon rate is higher

If the coupon rate on a bond is 4.50% and the bond is selling at a premium, which of the following is the most likely yield to maturity on the bond?

lowest, A bond sells at premium when coupon rate > YTM.

The duration is independent of the coupon rate only for which one of the following?

perpetuities

An increase in a bond's yield to maturity results in a price decline that is ________ the price increase resulting from a decrease in yield of equal magnitude.

smaller than

The invoice price of a bond is the

stated or flat price in a quote sheet plus accrued interest

. Given its time to maturity the duration of a zero coupon bond is _________.

the same regardless of the discount rate