shared via CourseHero com This study resource was This study source was downloaded by 100000835946828 from CourseHero com on 11 12 2021 04 35 51 GMT 06 00 https www coursehero com file 84092987 coursehero3docx CHAPTER 31 If interest rates increase the value of a fixed income contract decreases and vice versa TRUE2 At equilibrium a security s required rate of return will be less than its expected rate of return FALSE3 If a security s realized return is negative it must have been true that the expected return was greater than the required return FALSE4 Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond The premium bond must have a greater expected return than the discount bond FALSE5 A bond with an 11 percent coupon and a 9 percent required return will sell at a premium to par TRUE6 A fairly priced bond with a coupon less than the expected return must sell at a discount from par TRUE7 All else equal the holder of a fairly priced premium bond must expect a capital loss over the holding period TRUE8 The duration of a four year maturity 10 percent coupon bond is less than four years TRUE9 The longer the time to maturity the lower the security s price sensitivity to an interest rate change ceteris paribus FALSE10 The greater a security s coupon the lower the security s price sensitivity to an interest rate change ceteris paribus TRUE11 For a given interest rate change a 20 year bond s price change will be twice that of a 10 yearbond s price change FALSE12 Any security that returns a greater percentage of the price sooner is less price volatile TRUE13 A zero coupon bond has a duration equal to its maturity and a convexity equal to zero TRUE14 The lower the level of interest rates the greater a bond s price sensitivity to interest rate changes TRUE15 The higher a bond s coupon the lower the bond s price volatility TRUE16 Higher interest rates lead to lower bond convexity ceteris paribus TRUE shared via CourseHero com This study resource was This study source was downloaded by 100000835946828 from CourseHero com on 11 12 2021 04 35 51 GMT 06 00 https www coursehero com file 84092987 coursehero3docx 17 A 10 year maturity zero coupon bond will have lower price volatility than a 10 year bond with a 10 percent coupon FALSE18 Ignoring default risk if a bond s expected return is greater than its required return then the bond s market price must be greater than the present value of the bond s cash flows FALSE19 The coupon rate represents the most accurate measure of the bondholder s required return FALSE20 The higher the interest rate is the higher the duration all else being equal FALSE21 The required rate of return on a bond isA the interest rate that equates the current market price of the bond with the present value of all future cash flows received B equivalent to the current yield for nonpar bonds C less than the E r for discount bonds and greater than the E r for premium bonds D inversely related to a bond s risk and coupon E None of these choices are correct 22 Duration isB the weighted average time to maturity of the bond s cash flows 23 Which of the following bond terms are generally positively related to bond price volatility I Coupon rate II Maturity III YTM IV Payment frequency D II only24 The interest rate used to find the present value of a financial security is theB required rate of return 25 A security has an expected return less than its required return This security isC selling for more than its PV 26 A bond that you held to maturity had a realized return of 8 percent but when you bought it ithad an expected return of 6 percent If no default occurred which one of the following must be true D The coupons were reinvested at a higher rate than expected 27 You would want to purchase a security if P PV or E r r C 28 A 10 year annual payment corporate bond has a market price of 1 050 It pays annual interest of 100 and its required rate of return is 9 percent By how much is the bond mispriced C Underpriced by 14 18 shared via CourseHero com This study resource was This study source was downloaded by 100000835946828 from CourseHero com on 11 12 2021 04 35 51 GMT 06 00 https www coursehero com file 84092987 coursehero3docx 29 A 12 year annual payment corporate bond has a market price of 925 It pays annual interest of 60 and its required rate of return is 7 percent By how much is the bond mispriced D Overpriced by 4 4330 An eight year corporate bond has a 7 percent coupon rate What should be the bond s price if the required return is 6 percent and the bond pays interest semiannually A 1 062 8131 A 15 year corporate bond pays 40 interest every six months What is the bond s price if the bond s promised YTM is 5 5 percent B 1 253 1232 A corporate bond has a coupon rate of 10 percent and a required return of 10 percent This bond s price isB 1 000 00 33 A 10 year annual payment corporate coupon bond has an expected return of 11 percent and a required return of 10 percent The bond s market price isD less than its PV 34 An eight year annual payment 7 percent coupon Treasury bond has a price of 1 075 The bond s annual E r must beB 5 80 percent 35 A six year annual payment corporate bond has a required return of 9 5 percent and an 8 percent coupon Its market value is 20 over its PV What is the bond s E r D 9 03 percent36 Corporate Bond A returns 5 percent of its cost in PV terms in each of the first five years and 75 percent of its value in the sixth year Corporate Bond B returns 8 percent of its cost in PV terms in each of the first five years and 60 percent of its cost in the sixth year If A and B have the same required return which of the following is are true I Bond A has a bigger coupon than Bond B II Bond A has a longer duration than Bond B III Bond A is less price volatile than Bond B IV Bond B has a higher PV than Bond A D II and IV only37 A corporate bond returns 12 percent of its cost in PV terms in the first year 11 percent in the second year 10 percent in the third year and the remainder in the fourth year What is the bond s duration in years E 3 32 years38 A semiannual payment bond with a 1 000 par has a 7 percent quoted coupon rate a 7 …