A) The bond's yield to maturity is 9%.
B) The bond's current yield is 9%.
C) If the bond's yield to maturity remains constant,the bond will continue to sell at par.
D) The bond's current yield exceeds its capital gains yield.
E) The bond's expected capital gains yield is positive.
G) A) and B)
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A) For any given maturity,a 1.0 percentage point decrease in the market interest rate would cause a smaller dollar capital gain than the capital loss stemming from a 1.0 percentage point increase in the interest rate.
B) From a corporate borrower's point of view,interest paid on bonds is not tax-deductible.
C) Price sensitivity as measured by the percentage change in price due to a given change in the required rate of return decreases as a bond's maturity increases.
D) For a bond of any maturity,a 1.0 percentage point increase in the market interest rate (rd) causes a larger dollar capital loss than the capital gain stemming from a 1.0 percentage point decrease in the interest rate.
E) A 20-year zero coupon bond has more reinvestment rate risk than a 20-year coupon bond.
G) All of the above
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A) Market interest rates rise sharply.
B) Market interest rates decline sharply.
C) The company's financial situation deteriorates significantly.
D) Inflation increases significantly.
E) The company's bonds are downgraded.
G) A) and C)
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A) If the maturity risk premium (MRP) is greater than zero,then the yield curve must have an upward slope.
B) Because long-term bonds are riskier than short-term bonds,yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds.
C) If the maturity risk premium (MRP) equals zero,the yield curve must be flat.
D) The yield curve can never be downward sloping.
E) If inflation is expected to increase in the future,and if the maturity risk premium (MRP) is greater than zero,then the yield curve will have an upward slope.
G) B) and E)
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A) 3.92%
B) 4.12%
C) 4.34%
D) 4.57%
E) 4.81%
G) A) and D)
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A) All else equal,bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities.
B) If a bond is selling at its par value,its current yield equals its yield to maturity.
C) If a bond is selling at a premium,its current yield will be greater than its yield to maturity.
D) All else equal,bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons.
E) If a bond is selling at a discount to par,its current yield will be less than its yield to maturity.
G) A) and D)
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B) False
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A) Both bonds would decline in price,but the 10-year bond would have the greater percentage decline in price.
B) The prices of both bonds would increase by the same amount.
C) One bond's price would increase,while the other bond's price would decrease.
D) The prices of the two bonds would remain constant.
E) The prices of both bonds will decrease by the same amount.
G) A) and B)
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A) Liquidity premiums are generally higher on Treasury than corporate bonds.
B) The maturity premiums embedded in the interest rates on U.S.Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds.
C) Default risk premiums are generally lower on corporate than on Treasury bonds.
D) Reinvestment rate risk is lower,other things held constant,on long-term than on short-term bonds.
E) If the maturity risk premium were zero and interest rates were expected to decrease in the future,then the yield curve for U.S.Treasury securities would,other things held constant,have an upward slope.
G) A) and B)
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A) The economy is not in a recession.
B) Long-term bonds are a better buy than short-term bonds.
C) Maturity risk premiums could help to explain the yield curve's upward slope.
D) Long-term interest rates are more volatile than short-term rates.
E) Inflation is expected to decline in the future.
G) A) and B)
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A) 2.59%
B) 2.88%
C) 3.20%
D) 3.52%
E) 3.87%
G) A) and D)
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A) The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates.
B) You hold two bonds.One is a 10-year,zero coupon,bond and the other is a 10-year bond that pays a 6% annual coupon.The same market rate,6%,applies to both bonds.If the market rate rises from the current level,the zero coupon bond will experience the smaller percentage decline.
C) The shorter the time to maturity,the greater the change in the value of a bond in response to a given change in interest rates.
D) The longer the time to maturity,the smaller the change in the value of a bond in response to a given change in interest rates.
E) You hold two bonds.One is a 10-year,zero coupon,issue and the other is a 10-year bond that pays a 6% annual coupon.The same market rate,6%,applies to both bonds.If the market rate rises from the current level,the zero coupon bond will experience the larger percentage decline.
G) All of the above
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A) All else equal,long-term bonds have less interest rate price risk than short-term bonds.
B) All else equal,low-coupon bonds have less interest rate price risk than high-coupon bonds.
C) All else equal,short-term bonds have less reinvestment rate risk than long-term bonds.
D) All else equal,long-term bonds have less reinvestment rate risk than short-term bonds.
E) All else equal,high-coupon bonds have less reinvestment rate risk than low-coupon bonds.
G) C) and E)
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A) Subordinated debt has less default risk than senior debt.
B) Convertible bonds have lower coupon rates than non-convertible bonds of similar default risk because they offer the possibility of capital gains.
C) Junk bonds typically provide a lower yield to maturity than investment-grade bonds.
D) A debenture is a secured bond that is backed by some or all of the firm's fixed assets.
E) Junior debt is debt that has been more recently issued,and in bankruptcy it is paid off after senior debt because the senior debt was issued first.
G) B) and C)
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B) False
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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.
G) C) and D)
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A) If a 10-year,$1,000 par,10% coupon bond were issued at par,and if interest rates then dropped to the point where rd = YTM = 5%,we could be sure that the bond would sell at a premium above its $1,000 par value.
B) Other things held constant,a corporation would rather issue noncallable bonds than callable bonds.
C) Other things held constant,a callable bond would have a lower required rate of return than a noncallable bond.
D) Reinvestment rate risk is worse from an investor's standpoint than interest rate price risk if the investor has a short investment time horizon.
E) If a 10-year,$1,000 par,zero coupon bond were issued at a price that gave investors a 10% yield to maturity,and if interest rates then dropped to the point where rd = YTM = 5%,the bond would sell at a premium over its $1,000 par value.
G) None of the above
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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.
G) A) and E)
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A) A 1-year bond with an 8% coupon.
B) A 10-year bond with an 8% coupon.
C) A 10-year bond with a 12% coupon.
D) A 10-year zero coupon bond.
E) A 1-year zero coupon bond.
G) C) and D)
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B) False
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