单选题
The investor would prefer the municipal bond because the
taxable-equivalent yield is greater than the yield on the corporate bond:
6.4%＞6.375%.
单选题
Assume a city issues a $ 5 million bond to build a new arena. The bond pays 8 percent semiannual interest and will mature in 10 years. Current interest rates are 9 percent. What is the pres ent value of this bond and what will the bond's value be in seven years from today?
Present Value Value in 7 Years from Today
①A. 4674802 4931276
②B. 5339758 4871053
③C. 4674802 4871053
A. ①B. ②C. ③
【正确答案】
C
【答案解析】Since the current interest rate is above the coupon rate the bond will be issued at a discount.
FV=$5000000, N=20, PMT=0.04×5 million = $200000, I/Y=4.5, CPT PV=$-4674802.
Since the current interest rate is above the coupon rate the bond will be issued at a discount.
FV=$5000000, N=6, PMT=0.04×5 million=$200000, I/Y=4.5, CPT PV=$-4871053.
单选题
An investor has the following options available to them:
They can buy a 10% semi annual coupon, 10 - year bond for
$1000. The coupons can be reinvested at 12%.
They estimate the bond will be sold in 3 years $1050.
Based on this information, what would be the average annual rate
of return over the 3 years?
A. 11.5%.
B. 13.5%.
C. 10.0%.
【正确答案】
A
【答案解析】The FV of the coupons and interest on interest: N=3×2=6; I=12/2=6; PMT=50; FV=348.77.
The value of the bond at the end of 3 years is given, 1050.00.
FV=1398.77(348.77+1050.00), PV=1000, N=6; I=5.75×2=11.5%.
单选题
A bond has a par value of $1000, a time to maturity of 20 years, a
coupon rate of 10 percent with interest paid annually, a current price of $ 850,
and a yield to maturity (YTM) of 12 percent. If the interest payments are
reinvested at 10 percent, the realized compounded yield on this bond is:
A. 10.00%.
B. 12.0%.
C. 10.9%.
【正确答案】
C
【答案解析】The realized yield would have to be between the reinvested rate of 10% and the yield to maturity of 12%.
单选题
A non-callable bond with 18 years remaining maturity has an annual
coupon of 7 percent and a $1000 par value. The current yield to maturity on the
bond is 8 percent. Which of the following is closest to the effective duration
of the bond?
A. 9.63.
B. 11.89.
C. 8.24.
【正确答案】
A
【答案解析】First, compute the current price of the bond as: FV=$1000, PMT=$70, N=18, I/Y=8%, compute PV=$906.28. Then compute the price of the bond if rates rise by 50 basis points to 8.5% as: FV=$1000, PMT=$70, N=18, I/Y=8.5%, compute PV=$864. 7. Then compute the price of the bond if rates fall by 50 basis points to 7.5% as: FV=$1000, PMT=$70, N=18, I/Y=7.5%, compute PV=-$951.47. The formula for effective duration is: (V_-V+)/(2V0△y). Therefore, effective duration is: ($951.47-$864.17)/(2×$906.28×0.005)=9.63.
单选题
If a bond has a convexity of 120 and a modified duration of 10, what
is the convexity adjustment associated with a 25 basis point interest rate
decline?
A. -2.875%.
B. -2.125%.
C. +0.075%.
【正确答案】
C
【答案解析】Con adj =+(120)×(-0.0025)×(-0.0025)=+0.000750 or 0.075%.
单选题
If interest rates fall, the:
A. callable bond's price rises faster than that of a noncallable but
otherwise identical bond.
B. callable bond's price rises more slowly than that of a noncallable but
otherwise identical bond.
C. value of call option embedded in the callable bond fails.
【正确答案】
B
【答案解析】When a callable bond's yield falls to a certain point, the price will increase at a decreasing rate as the yields continue to fall. Compare this to a noncallable bond where, as the yield falls the price rises at an increasing rate.
单选题
For an option-flee bond, if yields increase by 200 basis points, the parts of the total estimated percentage price change attributable to duration and the convexity adjustment, respectively, will most likely be:
Part of the total estimated percentage price change attributable to duration Part of the total estimated percentage price change attributable to the convexity adjustment
①A. Negative Positive
②B. Negative Negative
③C. Positive Positive
A. ①B. ②C. ③
【正确答案】
A
【答案解析】The total estimated price change for the bond is composed of the estimation based on the convexity. An option-free bond will exhibit positive convexity ( gains will be greater than losses given a change in yields) making the reduction price less than that implied by duration alone.
单选题
An investor gathered the following information about two 7 percent
annual-pay, option-free bonds: Bond R has 4 years to
maturity and is priced to yield 6 percent Bond S has 7
years to maturity and is priced to yield 6 percent Both
bonds have a par value of $1000. Given a 50 basis point
parallel upward shift in interest rates, what is the value of the two-bond
portfolio?
A. $2044.
B. $2030.
C. $2086.
【正确答案】
A
【答案解析】Given the shift in interest rates, Bond R has a new value of $1017 (N=4, PMT=70, FV=1000, I/Y=6.50%, CPT PV=1017). BondS's new value is$1027 (N=7, PMT=70, FV=1000, L/y =6.50%, CPT PV=1027). After the increase in interest rates, the new value of the two-bond portfolio is $2044(1017+1027).
单选题
The six-month Treasury bill has a yield to maturity of 5 percent. The
one-year Treasury bill, with zero coupon, has a yield to maturity of 6 percent.
If a Treasury note with a maturity of 1.5 years and a coupon rate of 6 percent
is priced at 97.32, what's the implied spot rate of 1.5 years?
A. 7.00%.
B. 7.50%.
C. 8.00%.
【正确答案】
C
【答案解析】97.32=3/1.025+3/(1.03)2+103/(1+r/2)3 97.32=2.93+2.83+103/(1+r/2)3 91.56=103/(1+r/2)3 (1+r/2)3=1.125 r=0.08 or 8%
单选题
Which of the following statements concerning arbitrage-free bond
prices is FALSE?
A. The riskier the bond, the greater is its credit spread.
B. It is not possible to strip coupons from U. S. Treasuries and resell
them.
C. The determination of spot rates is usually done using risk-free
securities.
【正确答案】
B
【答案解析】It is possible to both strip coupons from U. S. Treasuries and resell them, as well as to aggregate stripped coupons and reconstitute them into U. S. Treasury coupon bonds. Therefore, arbitrage arguments ensure that U. S. Treasury securities sell at or very near their arbitrage free values.
单选题
Consider a $ 1000 - face value, 12 - year, 8% , semiannual coupon bond
with a YTM of 10.45%. The change in value for a decrease in yield of 38 basis
points is:
A. $21.18
B. $22.76.
C. $23.06.
【正确答案】
C
【答案解析】With YTM=10.45% (I/Y=5.225), PMT=40, N=24, FV=1000, PV=$834.61.
With YTM =10.07% (I/Y=5.035), PV=$857.67, an increase of $23.06.
单选题
If a $1000 bond has a 14 percent coupon rate and a current market
price of 950, what is the current market yield?
A. 14.74%.
B. 14.00%.
C. 15.36%.
【正确答案】
A
【答案解析】14×1000=$140 coupon, 140/950×100=14.74.
单选题
If market rates do not change, as time passes the price of a
zero-coupon bond will:
A. approach zero.
B. approach the purchase price.
C. approach par.
【正确答案】
C
【答案解析】A bond's value may differ substantially from it's maturity value prior to maturity. But as maturity draws nearer the bond's value converges to it's maturity value. This statement is true for regular bonds as well as zero-coupon bonds.
单选题
The 3-year annual spot rate is 7%, the 4-year annual spot rate is
7.5%, and the 5-year annual spot rate is 8%. Based on the pure expectations
theory of interest rates, the 1-year implied forward rate in four years is
closest to:
A. 10.00%.
B. 7.75%.
C. 9.00%.
【正确答案】
A
【答案解析】4r1=(1+R5)5/(1+R4)4-1=(1.08)5/(1.075)4-1=1.47/1.335-1=0.10 or 10%.
单选题
A bond with an 8 percent semi-annual coupon and 10-year maturity is
currently priced at $904.52 to yield 9.5 percent. If the yield declines to 9
percent, the bond's price will increase to $934.96, and if the yield increases
to 10 percent, the bond's price will decrease to $875.38. Estimate the
percentage price change for a 100 basis point change in rates.
A. 4. 35%.
B. 2. 13%.
C. 6.58%.
【正确答案】
C
【答案解析】(price when yields fall - price when yields rise)/2×(initial price)×0.005=($934.96-875.38)/2×$904.52×0.005=$59.58/$9.05=6.58.
单选题
A bond with a 12 percent coupon, 10 years to maturity and selling at
88 has a YTM of:
A. between 10% and 12%.
B. between 13% and 14%.
C. over 14%.
【正确答案】
C
【答案解析】PMT=120, N=10, PV=-880, FV=1000; I=14.3.
单选题
Consider a 10 percent, 10 - year bond sold to yield 8 percent. One
year passes and interest rates remained unchanged (8 percent). What will have
happened to the bond's price during this period?
A. It will have decreased.
B. It will have increased.
C. It will have remained constant.
【正确答案】
A
【答案解析】The bond is sold at a premium, as time passes the bond's price will move toward par. Thus it will fall.
N=10; FV=1000, PMT=100; I=8; CPT PV=1134.
N=9; FV=1000, PMT=100; I=8; compute PV=1125.
单选题
Why should effective duration, rather than modified duration, be used
when bonds contain embedded options?
A. Effective duration considers expected changes in cash flows.
B. Modified duration considers expected changes in cash flows.
C. Either could be used if the bond has embedded options.
【正确答案】
A
【答案解析】Modified duration assumes that the cash flows on the bond will not change (i. e. , that we are dealing with non-callable bonds). This greatly differs from effective duration, which considers expected changes in cash flows that may occur for bonds with embedded options.
单选题
Which of the following statements concerning the current yield is
CORRECT? It:
A. is of great interest to conservative bond investors seeking current
income.
B. is of great interest to aggressive bond investors seeking capital
gains.
C. shows the rate of return an investor will receive by holding a bond to
maturity.
【正确答案】
A
【答案解析】The current yield of a bond only considers interest income. The capital gains/losses and reinvestment income are not considered. The formula for current yield is the annual cash coupon payment divided by the bond price.
单选题
Three years ago, at the advice of her financial planner, an investor
purchased a $1000 face, 4.50%, semiannual coupon bond with seven years to
maturity priced to yield 6.50% for $888.94. The reinvestment income that must be
generated over the life of the bond for the investor to realize a yield of 6.5%
is closest to:
A. $72.
B. $76.
C. $80.
【正确答案】
B
【答案解析】Semiannual compound rate is 0.065/2=0.0325. Ending value must be $888.94×(1.0325)14=$1391.02. The sum of the coupon payments is 1000×2.25%×14=315. So, the reinvestment income is $1391.02-$1000-$315=$76.
单选题
Suppose you have a three-security portfolio containing bonds A, B and
C. The effective portfolio duration is 5.9. The market values of bonds A, B and
C are $60, $25 and $80, respectively. The durations of bonds A
and C are 4. 2 and 6.2, respectively. Which of the following amounts is closest
to the duration of bond B?
单选题
Consider a bond , par value $100 , that pays an annual coupon of 5
percent and that has three years remaining until maturity. Suppose the term
structure of interest rates is flat at 6 percent. How much does the bond price
change if the term structure of interest rates shifts down by 1 percent
instantaneously?
A. -2.67.
B. 2.67.
C. 0.00.
【正确答案】
B
【答案解析】This value is compute as follows:
Bond Price Change = New Price - Old Price = 100-(5/1.06+5/1.062+105/1.063)=2.67.
-2.67 is the correct value but the wrong sign. The value 0.00 is incorrect because the bond price is not insensitive to interest rate changes.
单选题
What is the duration of a floating rate bond that has six years
remaining to maturity and has semi-annual coupon payments. Assume a flat-term
structure of 6 percent. Which of the following is closest to the correct
duration?
A. 0.500.
B. 6.000.
C. 12.000.
【正确答案】
A
【答案解析】The duration of a floating rate bond is equal to the time until the next coupon payment takes place. As the coupon rate changes semi-annually with the level of the interest rate, a floating rate bond has the same duration as a pure discount bond with time to maturity equal to the time to the next coupon payment of the floating rate bond.
单选题
One of the most commonly used yield spread measures is the nominal
spread. Which of the following is a limitation of nominal spread? The nominal
spread assumes:
A. an upward sloping yield curve.
B. a downward sloping yield curve.
C. a flat yield curve.
【正确答案】
C
【答案解析】The nominal spread is the yield to maturity on a bond minus the yield to maturity on a Treasury security of a similar maturity. Because the nominal yield is based on the yield to maturity, it suffers the same shortcomings as yield to maturity. The yield measures assume that all cash flows can be discounted at the same rate (i. e. , assumes a fiat yield curve). They also assume that all coupon payments will be received in a prompt and timely fashion, and reinvested to maturity, at a rate of return that is equal to the appropriate solving rate ( i. e. , the bond's YTM or its BEY).
单选题
A semiannual-pay bond is callable in five years at $1080. The bond has an 8% coupon and 15 years to maturity. If an investor pays $ 895 for the bond today, what are the yield to call (YTC) and the yield to maturity (YTM), respectively?
YTC YTM
①A. 10.77% 9.31%
②B. 12.07% 9.31%
③C. 10.77% 10.21%
A. ①B. ②C. ③
单选题
Which of the following statements about a bond's cash flows is TRUE?
The appropriate discount rate is a function of:
A. the risk-free rate plus the return on the market.
B. the risk-free rate plus the risk premium.
C. only the risk premium.
【正确答案】
B
【答案解析】The return on the market would be used only when discounting the cash flows of the market. The risk premium reflects the cost of any incremental risk incurred by the investor above and beyond that of the risk-free security.
单选题
What is the probable change in price of a 30-year semiannual 6.5
percent coupon, $1000 par value bond yielding 8 percent when the nominal
risk-free rate changes from 5 percent to 4 percent?
A. $106.34.
B. $107.31.
C. $102.57.
【正确答案】
B
【答案解析】Price at 8% is N=60, FV=$1000, I=4%, PMT=$32.50, CPT PV =$830.32; price at 7% is N=60, FV=$1000, I=3.5%, FV=$1000, CPT PV=$937.64. Change in price is $107.31.
单选题
Assume that an option-free 5 percent coupon bond with annual coupon
payments has two years to maturity. A callable bond that is the same in every
respect as the option-free bond is priced at 91.76. With the term structure flat
at 6 percent, what is the value of the embedded call option?
A. -8.24.
B. 4.58.
C. 6.41.
【正确答案】
C
【答案解析】The option value is the difference between the option-free bond price and the corresponding callable bond price.
The value of the option-free bond is computed as follows: PMT=5, N=2, FV=100, I=6, CPT PV=-98.17 (ignore sign).
The option value =98.17-91.76=6.41.
单选题
Consider the following two statements about put-able bonds:
Statement 1: As yields fall, the price of put-able bonds will rise
less quickly than similar option-free bonds (beyond a critical point) due to the
decrease in value of the embedded put option. Statement
2: As yields rise, the price of put-able bonds will fall more quickly than
similar option-free bonds (beyond a critical point) due to the increase in value
of the embedded put option. You should:
A. agree with statement 1 and disagree with statement 2.
B. agree with statement 1 and agree with statement 2.
C. disagree with statement 1 and disagree with statement 2.
【正确答案】
C
【答案解析】Both statements are false. As yields fall, the value of the embedded put option in a put-able bond decreases and (beyond a critical point) the put-able bond behaves much the same as an option-free bond. As yields rise, the value of the embedded put option increases and (beyond a critical point) the put-able bond decreases in value less quickly than a similar option-free bond.
单选题
You are considering the purchase of a three-year annual coupon bond
with a par value of $1000 and a coupon rate of 5.5 percent. You have determined
that the spot rate for year 1 is 5.2 percent, the spot rate for year two is 5.5
percent, and the spot rate for year three is 5.7 percent. What would you be
willing to pay for the bond now?
A. $937.66.
B. $995.06.
C. $1000.00.
【正确答案】
B
【答案解析】The present value of cash flow 1 is: FV=$55, PMT=0, I/Y=5.2%, N=1, and PV=-$52.28.
The present value of cash flow 2 is: FV=$55, PMT=0, I/Y=5.5%, N=2, and PV=-$49.42.
The present value of cash flow 3 is: FV=$1055, PMT=0, I/Y=5.7%, N=3, and PV=-$893.36. The most you pay for the bond is the sum of: $52.28+$49.42+$893.36=$995.06.
单选题
Bond is selling at a discount relative to its par value. Which of the
following relationships holds?
A. yield to maturity ＜ coupon rate ＜ current yield.
B. current yield ＜ coupon rate ＜ yield to maturity.
C. coupon rate ＜ current yield ＜ yield to maturity.
【正确答案】
C
【答案解析】When a bond is selling at a discount, it means that the bond has a larger YTM (discount rate that will equate the PV of the bond's cash flows to its current price) than its current yield ( coupon payment/current market bond price) and coupon payment.
单选题
Current spot rates are as follows: 1- Year:
6.5% 2 - Year: 7.0% 3 - Year:
9.2% Which of the following is TRUE?
A. For a 3 - year annual pay coupon bond, all cash flows can be discounted
at 9.2% to find the bond's arbitrage-free value.
B. The yield to maturity for 3 - year annual pay coupon bond can be found by
taking the arithmetic average of the 3 spot rates.
C. For a 3 - year annual pay coupon bond, the first coupon can be discounted
at 6.5%, the second coupon can be discounted at 7.0% , and the third coupon plus
maturity value can be discounted at 9.2% to find the bond's arbitrage-free
value.
【正确答案】
C
【答案解析】Spot interest rates can be used to price coupon bonds by taking each individual cash flow and discounting it at the appropriate spot rate for that year's payment. Note that the yield to maturity is the bond's internal rate of return that equates all cash flows to the bond's price. Current spot rates have nothing to do with the bond's yield to maturity.
单选题
All else held equal, the duration of bonds selling at higher yields
compared to bonds selling at lower yields will be:
A. greater.
B. lower.
C. equal.
【正确答案】
B
【答案解析】Duration is inversely related to yield to maturity (YTM). The higher the YTM, the lower the duration. This is because the change in the bond's price ( or present value) is inversely related to changes in interest rates. When market yields rise, the value ( or cash flow) of a bond decreases without decreasing the time to maturity.
单选题
Calculate the current yield and the Yield-to-first Call on a bond with the following characteristics:
5 years to maturity
$1000 face value
8.75% semi-annual coupon
Priced to yield 9.25%
= Callable at $1025 in two years
Current Yield Yield-to-Call
①A. 8.93% 11.02%
②B. 9.83% 19.80%
③C. 12.67% 11.02%
A. ①B. ②C. ③
【正确答案】
A
【答案解析】FV=1000, N=10=5×2, PMT=43.75=(1000×0.0875)/2, I/Y=4.625 (9.25/2),
Compute PV =-980.34.
CY=(Face value × Coupon)/PV of bond =(1000×0.0875)/980.34=8.93%.
FV=1025(price at first call), N=4(2×2), PMT=43.75 (same as above), PV=-980.34
L/y=5.5117 (semi-annual rate, need to multiply by 2)=11.02%.
单选题
Which of the following characteristics would create the least
difficulty in estimating a bond's cash flows?
A. Variable coupon rate.
B. Put-able bond.
C. Non-callable bond.
【正确答案】
C
【答案解析】Normally, estimating the cash flow stream is straightforward for a high quality, option-free bond due to the high degree of certainty in the timing and amount of the payments. The following four conditions could lead to difficulty in forecasting the bond's future cash flow stream: (1) increased credit risk, (2) the presence of embedded options (i. e. call/put features or sinking fund provisions), (3) the use of variable rather than fixed coupon rate, and (4) the presence of a conversion or exchange privilege.
单选题
An 11 percent coupon bond with annual payments and 10 years to
maturity is callable in 3 years at a call price of $1100. If the bond is selling
today for 975, the yield to call is:
A. 14.97%.
B. 10.26%.
C. 10.00%.
【正确答案】
A
【答案解析】PMT=110, N=3, FV=1100, PV=975; CPT I=14.97
单选题
Answering an essay question on a midterm examination, a finance student writes these two statements:
Statement 1: The value of a fixed income security is the sum of the present values of all its expected future coupon payments.
Statement 2: The steps in the bond valuation process are to estimate the bond's cash flows, determine the appropriate discount rate, and calculate the present value of the expected cash flows. Should the instructor mark these statements correct or incorrect?
Statement 1 Statement 2
①A. Correct Correct
②B. Correct Incorrect
③C. Incorrect Correct
A. ①B. ②C. ③
【正确答案】
C
【答案解析】The value of a fixed income security is the sum of the present values of its expected future coupon payments and its future principal repayment.
The three steps in the bond valuation process are to estimate the cash flows over the life of the security; determine the appropriate discount rate based on the risk of the cash flows ; and calculate the present value of the cash flows using the appropriate discount rate.
单选题
An investor gathered the following information on three zero-coupon
bonds: 1 - year, $600 par, zero-coupon bond valued at
$571 2 - year, $600 par, zero-coupon bond valued at
$544 3 - year, $10600 par, zero-coupon bond valued at
$8901 Given the above information, how much should an investor
pay tbr a $10000 par, 3 - year, 6 percent, annual-pay coupon bond?
A. $10000.
B. $10600.
C. $10016.
【正确答案】
C
【答案解析】A coupon bond can be viewed simply as a portfolio of zero-coupon bonds. The value of the coupon bond should simply be the summation of the present values of the three zero-coupon bonds.
Hence, the value of the 3-year annual-pay bond should be $10016(571+544+8901).
单选题
The one-year spot rate is 6 percent and the one-year forward rates
starting in one, two and three years respectively are 6.5 percent, 6.8 percent
and 7 percent. What is the four-year spot rate?
A. 6.51%.
B. 6.58%.
C. 6.57%.
【正确答案】
C
【答案解析】The four-year spot rate is computed as follows: Four-year spot rate =[(1+0.06)×1+0.065)×(1+0.068)×(1+0.07)]1/4-1=6.57%
单选题
Which of the following statements about duration is TRUE?
A. The result of the formula for effective duration is for a 0.01% change in
interest rates.
B. A bond's percentage change in price and dollar change in price are both
tied to the underlying price volatility.
C. The formula for effective duration is: (price when yields fall - price
when yields rise)/(initial price × change in yield expressed as a
decimal).
【正确答案】
B
【答案解析】The effective duration formula result is for a 1.00% change in interest rates (100 basis points equals 1.00% , or 0.01 in decimal form). The denominator in choice C is multiplied by 2. The greater the duration, the greater the price volatility. Remember that price volatility is directly related to maturity and inversely related to the coupon rate.
单选题
Given a required yield to maturity of 6 percent, what is the intrinsic
value of a semi-annual pay coupon bond with an 8 percent coupon and 15 years
remaining until maturity?
单选题
What value would an investor place on a 20 - year, $1000 face value,
10 percent annual coupon bond, if the investor required a 9 percent rate of
return?
单选题
What is the present value of a 7 percent semi-annual pay corporate bond with a $1000 face value and 20 years to maturity if it is yielding 6. 375 percent?? If a municipal bond is yielding 4.16 percent and an investors marginal tax rate is 35 percent, would the investor prefer the corporate bond or the municipal bond?
Value Investor preference
①A. $1121.23 municipal bond
②B. $1070.09 corporate bond
③C. $1070.09 municipal bond
A. ①B. ②C. ③
【正确答案】
C
【答案解析】N=20×2=40; I/Y=6.375/2=3.1875; PMT=70/2=35; and FV=1000.
Compute PV=$1070.09.
The taxable-equivalent yield on the municipal bond is:
4.16%/(1-0.35)=6.4%.
The investor would prefer the municipal bond because the taxable-equivalent yield is greater than the yield on the corporate bond: 6.4%＞6.375%.
单选题
An analyst has gathered the following information:
Bond A is an 11 percent annual coupon bond currently trading at 106. 385 and
matures in 3 years. The yield-to-maturity (YTM) for Bond A is 8.50
percent. The YTM for a Treasury bond that matures in 3 - years
is 7.65 percent. 1, 2, and 3 - year spot rates are 5.0 percent, 6.5 percent and
8.25 percent, respectively. Which of the following statements regarding spreads
on bond A is TRUE?
A. The nominal spread is approximately 85 basis points.
B. The Z-spread is approximately 85 basis points.
C. The option-adjusted spread is approximately 75 basis points.
【正确答案】
A
【答案解析】The nominal spread is 8.50%-7.65%=0.85%. Note that the Z-spread, calculated by trial and error, is approximately 48 basis points.
单选题
Which of the following is a limitation of the cash flow yield measure?
The cash flow yield measure:
A. uses a 360-day year.
B. assumes that the projected cash flows are reinvested at the cash flow
yield.
C. assumes a flat yield curve.
【正确答案】
B
【答案解析】Cash flow yield has two major deficiencies: (i) it is implicitly assumed that the cash flows will be reinvested at the cash flow yield prevailing when the MBS or ABS is priced, and (ii) it is assumed that the MBS or ABS will be held until maturity.
单选题
Which of the following statements about duration is FALSE?
A. There is a direct relationship between yield to maturity and
duration.
B. There is an inverse relationship between coupon and duration.
C. There is a direct relationship between duration and maturity.
【正确答案】
A
【答案解析】Bonds with longer maturity have a higher duration, all other things the same. Bonds with larger coupons have a smaller duration, all other things the same. A zero coupon bond has an effective duration equal to its maturity. Duration measures the approximate change in price given a change in interest rates. Therefore, the duration of the bond does not change with the yield to maturity of the bond.
单选题
Which is the bond-equivalent yield given if the monthly yield is equal
to 0.7 percent?
A. 8.40%.
B. 8.58%.
C. 8.55%.
【正确答案】
C
【答案解析】The bond equivalent yield (BEY) is computed as follows: BEY =2×[(1 + monthly yield)6-1]=2×[(1+0.007)6-1]=8.55%
单选题
Yield to call is a less conservative yield measure than the yield to
maturity whenever the price of a callable bond is quoted at a value:
A. equal to par value less one year's interest.
B. equal to par value.
C. more than par.
【正确答案】
A
【答案解析】The more conservative yield measure is the one that results in a lower yield. The YTM on a discount bond will always be less than its yield to call.
单选题
A coupon bond pays annual interest, has a par value of $1000, matures
in 4 years, has a annual coupon of $100, and a yield to maturity of 12 percent.
The current yield on this bond is:
单选题
At 1 January, 2008, an option-free 8 percent annual coupon bond, with 10 years to maturity and a par value of $1000, had a discount rate of 9 percent. On 1 January 2009, the discount rate had decreased to 8.5 percent because of an upgrade in the bond's rating. If interest is paid annually, the portions of the bond's price change from 2008 to 2009 attributable to the passage of time and the rating upgrade respectively, are closet to:
Passage of time Rating upgrade
①A. -$4.23 $29.35
②B. -$4.23 $33.58
③C. $4.23 $29.35
A. ①B. ②C. ③
【正确答案】
C
【答案解析】2009.1.1 N=10, PMT=80, FV=1000, I/Y=9, PV=935.82;
2009.1.1 not considering rating upgrade, N=9, PMT=80, FV=1000, I/Y=9, PV=940.05;
2009.1.1 considering rating upgrade, N=9, PMT=80, FV=1000, If Y=8.5 PV=969.40;
Passage of time =940.05-935.82=4.23
Rating upgrade =969.40-940.05=29.35
单选题
An investor purchased a 10 - year zero-coupon bond with a yield to
maturity of 10 percent and a par value of $1000. What would her rate of return
be at the end of the year if she sells the bond? Assume the yield to maturity on
the bond is 9 percent at the time it is sold and annual compounding periods are
used.
单选题
In capital markets, stock dividends and bond coupons generally provide
what is referred to as:
A. current yield.
B. capital gain yield.
C. internal yield.
【正确答案】
A
【答案解析】Current yield is based on actual cash received during the investment horizon and is typically composed of dividends and interest.
单选题
Which of the following statements about duration and convexity is
FALSE?
A. duration to first call is longer than duration to maturity.
B. convexity of a callable bond is always lower than that of a noncallable
bond when rates fall.
C. callable bonds' convexity can be negative.
【正确答案】
A
【答案解析】Duration to maturity is longer than duration to first call because one measure of duration is the time until maturity or until the bond is called. Since the time until the first call is shorter than if the bond was not called the duration to first call is shorter than duration to maturity.