Statement I. Generally, the tenor of the investment also defines the riskiness of the repayment of debt. Statement II. The longer the life of the debt, the riskier the repayment. Hence, the interest rate is lower. Statement III. The term tenor describes the length of time remaining in the life of a financial contract. a. II only b. III only

Statement I. Generally, the tenor of the investment also defines the riskiness of the repayment of debt. Statement II. The longer the life of the debt, the riskier the repayment. Hence, the interest rate is lower. Statement III. The term tenor describes the length of time remaining in the life of a financial contract. a. II only b. III only

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 7Q

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7. A. Define duration and explain how duration is used in the management of a portfolio of financial securities. B. Why is duration a better measurement of interest rate risk than the time it takes to reduce the principal balance on a loan by 50%? C. How does maturity and yield affect the sensitivity of a financial security to changes in interest rates?
1. According to PFRS 9, The amortized cost of a financial instrument is calculated using. A. The effective interest method. B. The straight line method C. A or b D. Choice a however, the straight line method can be used in some circumstances. 2. The amortization of a discount on an investment in bonds measured at amortized cost A. Increases the carrying amount of the investment B. Is the excess of interest income over interest received or receivable. C. Is recorded directly to the invesment account D. All of these 3. Which of the following statements is correct for an investment in term bonds that was acquired at a premium? A. The amortized cost of the bonds increases annually. B. The current and non current portions of the bonds as of the reporting date are reported separately. C. The interest income recognized each year is higher than the amount of interest received/ receivable. D. The effective interest rate is lower than the stated rate of the bonds. 4. The rate…
57. Which of the following statements is incorrect about bonds? In all ofthe statements, assume other things are held constant.a. Price sensitivity, that is, the change in price due to a given changein the required rate of return, increases as a bond’s maturityincreases.b. For a given bond of any maturity, a given percentage point increasein the interest rate (kd) causes a larger dollar capital loss thanthe capital gain stemming from an identical decrease in the interestrate.c. For any given maturity, a given percentage point increase in theinterest rate causes a smaller dollar capital loss than the capitalgain stemming from an identical decrease in the interest rate.d. From a borrower’s point of view, interest paid on bonds is taxdeductible.e. A 20-year zero coupon bond has less reinvestment rate risk than a 20-year coupon bond.
(Based on Appendix 12B) When market rates of interest rise after a fixed-rate security is purchased, the value ofthe now-below-market, fixed-interest payments declines, so the market value of the investment falls. If that dropin fair value is viewed as giving rise to an other-than-temporary impairment, how would it be reflected in theinvestment account for a security classified as held-to-maturity?
4. When the market rate of interest is greater than the contract rate ofinterest, the bonds should sell at a. a premium b. par value c. a discount d. par value
Repricing risk refers to: Question 11 options: Risk of a change to the maturity of a credit Risk from a change to the interest rate on a loan Risk from reclassification of the creditworthiness of the borrower Risk of a change to the repayment schedule of a loan
Which factor(s) lead to the difference of the interest between T-bill and a short-term corporate bond? Group of answer choices a)Inflation rate b)Default risk and maturity risk c)Maturity risk d)Default risk
18. The use of the effective-interest method to amortize a discount associated with the acquisition of an investment in bonds results in a. the recognition of more interest revenue over the life of the investment than the use of the straight-line method b. the recognition of a constant amount of interest revenue each period c. the recognition of less interest revenue over the life of the investment than the use of the straight-line method d. the recognition of a varying amount of interest revenue each period
Credit risk refers to: Question 10 options: Risk from reclassification of the creditworthiness of the borrower Risk from a change to the interest rate on a loan Risk of a change to the repayment schedule of a loan Risk of a change to the maturity of a credit
8 When considering counterparty credit risk, which of the following financial products has the largest outstanding notional amount in the marketplace A. Credit default swaps. B. Foreign exchange forwards. C. Interest rate swaps. D. Repos and reverse repos
Which of the following statements is true? Select one:a)Short-term bonds have greater interest rate risk than do long-term bonds.b)Interest rate risk is highest during periods of high interest rates.c)Long-term bonds have greater interest rate risk than do short-term bonds.d)All bonds have equal interest rate risk.
Refer to Chapter 10, page 567: Stated rate of interest versus the market rate of interest Required Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: ____ The stated rate of interest is higher than the market rate. ____ The market rate of interest is equal to the stated rate. ____ The market rate of interest is less than the stated rate. ____ The stated rate of interest is less than the market rate. ____ The market rate of interest is higher than the stated rate