Question

1. Which of the following variables does not affect the term structure of interest rates?

a. real interest rate b. nominal interest rate c. credit risk premium d. interest rate risk premium e. inflation premium

2. We are given the following information on a bond issue: Terms Amount of issue: $150 million Issue date: 3/1/2016 Maturity date: 3/1/2041 Face value: $1,000 Annual coupon: 5.25% Yield to maturity: 6.00% Coupon payment: Semi-annual; 3/1 and 9/1 Security: Unsecured What is the price on this bond?

a. $1,103.75 b. $1,000.00 c. $997.47 d. $904.12 e. $903.51

3. Bonds are normally traded over-the-counter (OTC). The main criticism levied against trading in the OTC market as opposed to organized exchanges is

a. the bad reputation of the OTC dealers.

b. transactions in the OTC market are not transparently observed.

c. the small size of the OTC market.

d. the constraint of trading with a limited number of OTC dealers.

e. the high transaction costs involved in trading in the OTC market.

4. Which of the following bonds frequently includes a provision for a maximum and minimum coupon rate?

a. income bond b. real return bond c. retractable bond d. asset-backed bond e. floating rate bond

5. Today is August 1, 2017. A bond with a coupon rate of 8.2% has an invoice price of $1,057. The issue date on the bond is May 1, 2016, and the maturity date on the bond is May 1, 2026. The bond makes semi-annual coupon payments on May 1 and November 1. What is the clean price on this bond?

a. $1,002.33 b. $1,036.50 c. $1,043.33 d. $1,070.67 e. $1,084.33

6.Protective covenants are designed to reduce ____________ faced by the bond holders.

a. agency costs b. liquidity risk c. interest rate risk d. risk of theft e. transaction costs

7. When interest rates ________, the prices of currently outstanding par-bonds ___________.

a. rise; fall because they are now trading at a premium

b. rise; rise because they are now trading at a premium

c. fall; rise because they are now trading at a discount

d. fall; rise because they are now trading at a premium

e. fall; remain unchanged because their yields are fixed

8. A firm has a bond issue with face value of $1,000, 8% coupon rate, and eight years to maturity. The bond makes coupon payments every six months, and is currently priced at $1,055.85. What is the yield to maturity on this bond?

a. 3.54% b. 6.95% c. 7.07% d. 7.49% e. 14.99%

9. What is the duration of a five-year bond with coupon rate of 8%, yield to maturity of 6%, semi-annual coupon payment, and face value of $1,000?

a. 3.80 years b. 3.95 years c. 4.20 years d. 4.25 years e. 8.51 years

10. The yield on a 10-year bond is 6.5%. The 30-day T-bill yield is 3.5%, while the inflation rate is estimated to be 2.5%. What is the real rate of return on the bond based on the exact Fisher Effect formula?

a. 3.00% b. 3.90% c. 4.00% d. 6.50% e. 9.16%

Answer 1

HI

As per policy we will solve only one question here.

Out of the given options, credit risk premium does not affect term structure of interest rates.

term structure depends on a) real interest rates b) nominal interest rate d) interest rate risk premium e) inflation premium

hence option c) credit risk premium is correct here.

Thanks