Question

Which of the following is NOT the amount that is originally borrowed or the amount that is repaid when the bond

mature is due?

A) Indenture.

B) Par value.

C) Principal amount.

D) Maturity value.

E) B, C, and D are correct.

2.

Assume that a 10-year semi-annual, 6% bond is callable after 5 years at 102% of par value and the discount rate in today’s market is 5%. Using the price-to-worst method, what is the value of this bond?

A) $1,089

B) $1,000

C) $1,059

D) $1,020

E) $1,078

3.

Which of the following is NOT true concerning the interest rate risk while investing in fixed-coupon debt obligations?

A) The longer the maturity of a bond, the lower the volatility of bond prices, the smaller the risk.

B) Interest rate risk is the risk that a change in market interest rates will affect the value of the bond.

C) Fluctuations in market levels of interest rates would affect the price a bond.

D) Interest rate risk is the most difficult risk to assess, among the four types of risks.

E) The lower the coupon on a bond, the higher the volatility of bond prices, the greater the interest rate risk

4.

You own a 15-year bond and a 20-year bond, both of which are non-callable bond and pay a coupon of 10%. What is true about the change in value of your bonds if interest rate rise from 7% to 9%?

A) The value of the 20-yr bond will decrease by $34 more than the 15-yr bond

B) The value of the 20-yr bond will decrease by $45 more than the 15-yr bond

C) The value of the 20-yr bond will increase by $11 more than the 15-yr bond

D) The value of the 20-yr bond will increase by $34 more than the 15-yr bond

E) The value of the 20-yr bond will decrease by $11 more than the 15-yr bond

5.

Which of the following is TRUE regarding fixed rate discount bonds?

A) The bond’s coupon rate is lower than the yield that it offers.

B) The market value of the bond is higher than par.

C) The bond’s coupon rate is higher than the yield that it offers.

D) The bond’s coupon rate is equal to the yield that it offers.

E) The market value of the bond is equal to its par value.

6.

Value a 20-yr semi-annual, non-callable bond that pays coupons of 8% assuming market interest rates are 10%.

A) $989

B) $828

C) $909

D) $1,455

E) $1,000

7.

Which of the following is true about bonds?

A) Only bonds issued in the primary market are subject to prepayment risk

B) Spread to treasuries measures the difference between the coupon rate paid by a bond and the coupon rate paid by risk free security with the comparable maturity

C) Interest from mortgage bonds are not taxed by the Federal Government.

D) The primary advantage to municipal bonds is that interest income received is not taxed by the federal government

E) The bond rating being changed from BBB+ to B would result in a lower required yield

8.

Which of the below is/are considered the risk(s) that the bond will not pay interest or principal?

A) Default risk

B) Reinvestment risk

C) Interest rate risk

D) Prepayment risk

E) All of the above

9.

According to the Random Walk Hypothesis, in efficient markets, ________.

A) There is a predictable trend in stock prices.

B) Stock prices are not random and they can be predicted by past movements.

C) Stock prices can be predicted solely on the basis of past movements.

D) Stock prices are not random.

E) Stock prices are random and cannot be predicted solely on the basis of past movements.

10.

Which of the following is the risk that changes in market rates will affect the value of a bond?

A) Systematic risk

B) Prepayment risk

C) Reinvestment risk

D) Interest rate risk

E) Default risk

PSU update move review panel

11.

Which of the following is definitely true when interest rates are higher than a bond’s coupon rate?

A) Bond will sell at a premium

B) Bond will sell at a discount

C) Bond will sell at par

D) Coupon rate will be increased to current interest rate

E) Principal to be repaid will increase

12.

Given the following information, calculate the present value of the following bond that pays semi-annual coupons. Par value: $1,000. Coupon Rate: 6%. Interest Rate: 8%. Maturity: 10 years.

A) $1,149

B) $804

C) $864

D) $919

E) $1,000

13.

Which of the following is true of bonds?

A) Bonds are an equity investment.

B) Bonds don’t have default risk.

C) Bonds are only issued by governments and municipalities.

D) Bonds pay principal at maturity.

E) Bonds repay the principal to the investor in semi-annual payments only.

14.

Which of the following is true concerning the duration of a bond?

A) Duration is the same as the time until the bond is callable by the issuer.

B) The higher the coupon payment on a bond, the longer the duration.

C) All bonds with the same coupon rate will have the same duration.

D) Duration is a measure of the price volatility of an asset given a change in the coupon rate.

E) A longer duration signifies a higher level of interest rate risk.

15.

An upward sloping yield curve means that:

A) The yield curve is not related to required return on Treasuries.

B) Investors require lower returns for longer maturity Treasuries.

C) Investors require higher returns for longer maturity Treasuries.

D) Investors require higher returns for shorter maturity Treasuries.

E) Investors require the same return for both short and long-term Treasuries.

16.

Which of the following is a risk associated with bonds?

A) Stock Market Risk

B) Default Risk

C) Low Principal Risk

D) Zero coupon Risk

E) Ratings Upgrade Risk

17.

Which of the following is true concerning the interest rate risk of bonds?

A) The longer the maturity of a bond, the lower the interest rate risk of that bond

B) The higher the coupon of a bond, the higher the interest rate risk of that bond

C) The length of maturity of a bond does not affect interest rate risk

D) The lower the coupon of a bond, the higher the interest rate risk of that bond

E) The shorter the maturity of a bond, the higher the interest rate risk of that bond

18.

If you bought a stock for $100 and sold it for $85 after a year, you also received a dividend of $5 in that year. What was the RETURN you received over the year?

A) 10.0%

B) -15.0%

C) 5.0%

D) -10.0%

E) -11.8%

19.

Calculate value of a perpetuity with even annual cash flows of $10,800 with 8% discount rate.

A) $233,280

B) $135,000

C) $11,664

D) $10,000

E) $108,000

20.

According to _________________, the yield curve represents a series of expected future short-term interest rates.

A) the random walk theory

B) pure expectations hypothesis

C) the market segmentation hypothesis

D) the efficient markets theory

E) the liquidity preference theory

21.

What is true about the excess return period?

A) It refers to the period in which a firm is able to earn returns on new investments that are lower than its cost of capital due to competitive advantage of the firm over others

B) The excess return period is does not have a major impact on the value of a stock

C) The higher the competition in the industry the lower the excess return period

D) The excess return period is used to value a stock with technical analysis but not fundamental analysis

E) A company that sells commodities will likely have an excess return period of over 7 years

22.

Which of the following is an example of fundamental analysis?

A) Studying financial statements.

B) Analyzing historical stock price movements.

C) Analyzing the daily trading volume of the stock.

D) Analyzing the stock price momentum.

E) Analyzing the price and volume relationships.

23.

Which of the following is true about the dividend policy of a company?

A) If interest rates increase, the dividend policy of a company will always become more conservative

B) Companies with low excess return periods typically pay lower dividends

C) If the dividend is expected to grow, it will reduce the expected future value of the stock because the company is not reinvesting in new projects

D) The dividend policy of a company should affects the future value of a stock but not the current value

E) The higher the dividend paid, the higher the current value of the stock

24.

Which is true about callable bonds when compared to similar non-callable bonds?

A) Callable bonds generally have lower yields.

B) Callable bonds generally have higher credit ratings than similar non-callable bonds.

C) Callable bonds and non-callable bonds generally have the same yield.

D) Callable bonds usually have higher yields

E) Callable bonds are subject to less prepayment risk.

25.

Under which scenario is an issuer MOST likely to call their bonds?

A) Bond prices go down

B) Interest rates remain the same

C) The company faces a liquidity crisis

D) The issuer’s credit rating deteriorates

E) The issuer’s credit rating improvesSign up to view the entire interaction

 

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