Exam 5: Bonds, bond valuation, and interest rates

A) 5.01%
B) 5.27%
C) 5.54%
D) 5.81%
E) 6.10%

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A) If the yield to maturity remains at 8%, then the bond's price will decline over the next year.
B) The bond's coupon rate is less than 8%.
C) If the yield to maturity increases, then the bond's price will increase.
D) If the yield to maturity remains at 8%, then the bond's price will remain constant over the next year.
E) The bond's current yield is less than 8%.

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A) $829.21
B) $850.47
C) $872.28
D) $894.65
E) $917.01

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A) The bond is currently selling at a price below its par value.
B) If market interest rates remain unchanged, the bond's price one year from now will be lower than it is today.
C) The bond should currently be selling at its par value.
D) If market interest rates remain unchanged, the bond's price one year from now will be higher than it is today.
E) If market interest rates decline, the price of the bond will also decline.

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A) A 10-year, $1, 000 face value, zero coupon bond.
B) A 10-year, $1, 000 face value, 10% coupon bond with annual interest payments.
C) All 10-year bonds have the same price risk since they have the same maturity.
D) A 10-year, $1, 000 face value, 10% coupon bond with semiannual interest payments.

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A) If the Treasury yield curve is downward sloping, Long's bonds must under all conditions have the lower yield.
B) If the yield curve for Treasury securities is upward sloping, Long's bonds must under all conditions have a higher yield than Short's bonds.
C) If the yield curve for Treasury securities is flat, Short's bond must under all conditions have the same yield as Long's bonds.
D) If Long's and Short's bonds have the same default risk, their yields must under all conditions be equal.
E) If the Treasury yield curve is upward sloping and Short has less default risk than Long, then Short's bonds must under all conditions have the lower yield.

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A) 4, 228
B) 4, 337
C) 4, 448
D) 4, 562
E) 4, 676

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A) It could be less than, equal to, or greater than 6%.
B) Greater than 6%.
C) Exactly equal to 8%.
D) Less than 6%.
E) Exactly equal to 6%.

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A) Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds.
B) If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk.
C) Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk.
D) Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.
E) One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.

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A) Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity.
B) Bond C sells at a premium (its price is greater than par) , and its price is expected to increase over the next year.
C) Bond A sells at a discount (its price is less than par) , and its price is expected to increase over the next year.
D) Over the next year, Bond A's price is expected to decrease, Bond B's price is expected to stay the same, and Bond C's price is expected to increase.
E) Bond A's current yield will increase each year.

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A) If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.
B) If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond.
C) If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium.
D) If a coupon bond is selling at a premium, its current yield equals its yield to maturity.
E) If a coupon bond is selling at par, its current yield equals its yield to maturity.

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A) 7.39%
B) 7.76%
C) 8.15%
D) 8.56%
E) 8.98%

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A) If a coupon bond is selling at a discount, then the bond's expected capital gains yield is negative.
B) If a bond is selling at a discount, the yield to call is a better measure of the expected return than the yield to maturity.
C) The current yield on Bond A exceeds the current yield on Bond B.Therefore, Bond A must have a higher yield to maturity than Bond B.
D) If a coupon bond is selling at par, its current yield equals its yield to maturity.
E) If a coupon bond is selling at a premium, then the bond's current yield is zero.

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A) $839.31
B) $860.83
C) $882.90
D) $904.97
E) $927.60

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A) The total yield on a bond is derived from dividends plus changes in the price of the bond.
B) Bonds are riskier than common stocks and therefore have higher required returns.
C) Bonds issued by larger companies always have lower yields to maturity (less risk) than bonds issued by smaller companies.
D) The market value of a bond will always approach its par value as its maturity date approaches, provided the bond's required return remains constant.
E) If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices.

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