Quiz 3, Chapter 4

3. If interest rates rise, prices of short-term bonds will decline less than long-term bonds. Is this true or false? Why?

5. Price risk and reinvestment rate risk Which of the following statements are true? Check all that apply. оооо Purchasing long-term bonds reduces an investor's interest rate risk. Bonds with similar coupons will always have the same percentage price change, no matter the maturity. As long as bonds are highly rated, there is very little interest rate risk. When interest rates rise, the coupon rates on newly issued bonds will increase.

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According to the expectations theory of the term structure, O a when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. O b. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future. O c. buyers of bonds prefer short-term to long-term bonds. O d. all of the above. O e. only A and B of the above.

[S1] Prices of existing bonds move upward as marketinterest rates move downward. [S2] Assuming the samenominal interest rate, the investment with the higher riskwill have a higher value.

Which of the following statements is TRUE? O The demand for a bond declines when it becomes less liquid, decreasing the interest rate spread between it and relatively more liquid bonds. O The corporate bond market is the most liquid bond market. O The differences in bond interest rates reflect differences in default risk only. O A liquid asset is one that can be quickly and cheaply converted into cash.

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1. When the market interest rate rises, what happens to bond prices? Group of answer choices They rise They stay the same Cannot be determined They fall       2. A bond discount occurs when: Group of answer choices The price of a bond is above its face value. The price of a bond is above its maturity value. The price of a bond is below its face value. The price of the bond is equal to a bond's face value.       3. When a bond sells for a premium, Group of answer choices The price is above the face value The price is equal to the face value. The price is below the face value The price is below the maturity value.       4. A bond has a face value of $100,000 and a price of $97,000.  The journal entry at the date of issuance would include: Group of answer choices A credit to Bond Discount of 3,000 A debit to Bond Discount of 97,000 A debit to Bond Discount of 3,000 A credit to Bond Premium of 3,000       5. A bond has a face…

Which of the following are generally true of all bonds? Group of answer choices a) Prices and returns for long-term bonds are more volatile than those for shorter-term bonds. b)Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. c) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. d) All of the above are true. e) Only A and B of the above are true.

When bond prices become more volatile, the demand for bonds ________ and the interest rate ________. Group of answer choices decreases; rises decreases; falls increases; rises increases; falls

Which type of bonds offer a higher yield? Callable bonds Noncallable bonds Answer the following question based on your understanding of interest rate risk and reinvestment risk. True or False: Assuming all else is equal, the shorter a bond's maturity, the more its price will change in response to a given change in interest rates. False True

Long-term bonds fluctuate more than short-term bonds as interest rates rise, making them a riskier investment. When interest rates rise, bond prices fall. A bond's coupon rate or interest rate determines the annual payment to the issuer. what does this mean?

Which one of the following statements is NOT true? As interest rates increase, bond prices increase. Interest rate risk is the risk that bond prices will change as interest rates change. Interest rate changes and bond prices are inversely related. Long-term bonds have more price volatility than short-term bonds of similar risk

H4. Which statement is true? a. Duration is good for estimating the impact of large interest rate changes. b. The duration estimate is less accurate, the less convex the bond price/yield relationship. c. Effective duration is used to measure the price risk of the bonds with call options. d. The tangent line always overestimates the actual price

All else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments on floating rate bonds will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be greater than for low coupon bonds Select one: Oa. I, III, and IV only Ob.land Il only Oc. Il and IV only

1. Bonds with longer maturities will a. fluctuate less when interest rate change b. fluctuate more when interest rate change c. none of the above

If interest rates in the economy are rising, the market value of previously issued bonds will a. uctuate wildly. b. stay the same. c. increase. d. decline