QUESTION 1 You own a bond that has a duration of 7 years

Subject: Business    / Finance
Question
QUESTION 1

You own a bond that has a duration of 7 years. Interest rates are currently 6% but you believe the Fed is about to increase interest rates by 100 basis points. Your predicted price change on this bond is ________.
-0.7%
-1.4%
-2.5%
-6.6%

1 points

QUESTION 2

The bonds of ABC Company have received a rating of “A” by S&P. The “A” rating indicates the bonds are _________.

low grade

intermediate grade

investment grade

junk bonds

1 points

QUESTION 3

Consider the expectations theory of the term structure of interest rates. If the yield curve is downward sloping, this indicates that investors expect short-term interest rates to __________ in the future.
increase
decrease
not change
change in an unpredictable manner

1 points

QUESTION 4

What is the YTM on a bond with 10 years to maturity, 8% coupon rate, semi-annual coupon payments, and a price of $921?

4.0%

4.6%

9.2%

9.6%

1 points

any help will be appreciated!
QUESTION 5

What is the duration of a ten-year zero coupon bond with a YTM of 7%, par value of $1,000, and a AAA credit rating?

2 years

7 years

10 years

None of the above

1 points

QUESTION 6

You want to invest in a bond portfolio that you will use later to payoff a liability due in 7 years. Which of the following bond portfolios would immunize you from interest rate risk.

A) Zero coupon bonds with 7 years to maturity

B) A portfolio of bonds with a duration of 7 years

C) A portfolio of bonds with an average 7 years to maturity

A and B

A and C

1 points

QUESTION 7

A coupon bond pays semi-annual interest is reported as having an ask price of 97% of its $1,000 par value in the Wall Street Journal. If the last interest payment was made 3 months ago and the coupon rate is 2%, the invoice price of the bond will be _________. Choose the closest answer.
$970
$975
$985
$990

1 points

QUESTION 8

What would most likely happen to the YTM on the sovereign bonds of a country if that county becomes riskier and may have difficulty making future payments?

YTM will rise

YTM not affected

YTM will fall

1 points

QUESTION 9

What is the annual coupon payment paid in year 2 of a 10 year maturity TIPS with a par value of $1,000, annual coupon rate of 4%, and inflation of 1% in year 1, 2% in year 2 and 4% in year 3?

$41

$51

$60

$71

1 points

QUESTION 10

Everything else equal the __________ the maturity of a bond and the __________ the YTM the greater the sensitivity of the bond’s price to interest rate changes.
longer; higher
longer; lower
shorter; higher
shorter; lower