CH 3.5 TB ECON 2035
For a specific change in the yield to maturity: A) the shorter the time until a bond matures, the greater will be the change in its price. B) the longer the time until a bond matures, the greater will be the change in its price. C) the longer the time until a bond matures, the greater will be the change in its par value. D) the shorter the time until a bond matures, the greater will be the change in its coupon rate.
B
Interest-rate risk can best be characterized as the risk that: A) you could have earned a higher interest rate if you waited to purchase a bond. B) fluctuations in the price of a financial asset in response to changes in market interest rates. C) you could have gotten a lower interest rate if you waited to lock in a mortgage. D) short-term interest rates may exceed long-term interest rates.
B
Why isn't the current yield a good indicator of holding a bond? A) It doesn't account for the yield to maturity. B) It doesn't account for capital gains or losses. C) It doesn't account for the coupon. D) It assumes that the current price equals its par value.
B
How can a bond have a negative rate of return? A) if the current yield is greater than the coupon rate B) if the current yield is less than the coupon rate C) if the rate of capital loss exceeds the current yield D) if the rate of capital gains is less than the current yield
C
The rate of return is equal to the: A) sum of the coupon rate and the current yield. B) yield to maturity. C) sum of the current yield and the actual rate of capital gain or loss. D) sum of the current yield and the expected rate of capital gain.
C
The rate of return is equal to: A) the coupon rate plus the rate of capital gains. B) the coupon rate plus the current yield. C) the current yield plus the rate of capital gains. D) the coupon rate multiplied by the rate of capital gains.
C
What is the rate of return on a bond with a coupon of $55 that was purchased for $900 and sold one year later for $950? A) 5.56% B) 6.11% C) 11.67% D) 12.43%
C
Which of the following statements about the rate of return is NOT correct? A) The total rate of return may be greater or less than the current yield. B) The total rate of return may be greater or less than the rate of capital gain. C) The total rate of return may never be negative. D) The total rate of return is greater than the coupon, holding everything else constant.
C
If the current price of a bond is equal to its face value: A) there is no capital gain or loss from holding the bond until maturity. B) the yield to maturity must be greater than the current yield. C) the current yield must be greater than the coupon rate. D) the coupon rate must be greater than the yield to maturity.
A
If the current price of a bond is less than its face value: A) an investor will receive a capital gain by holding the bond until maturity. B) the yield to maturity must be less than the current yield. C) the coupon rate must be greater than the current yield. D) the coupon rate must be equal to the current yield.
A
What is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931? A) 2% B) 4% C) 6% D) 19%
A
If an investor is certain that market interest rates will decline in the future, which of the following will she be most likely to purchase? A) a six-month government bill B) a two-year government note C) a ten-year government bond D) a fifty-year government bond
D
U.S. Treasury bonds: A) carry no risk of default and are therefore not risky investments. B) have constant yields to maturity and are therefore not risky investments. C) have constant coupon rates and are therefore not risky investments. D) are subject to fluctuations in their market prices and are therefore risky investments.
D
