Questions: True/False

Question 1:

Answer: True

Question 2

Answer: false

Municipal bonds are tax exempted in order to make them more attractive

Question 3

Answer: false


Questions: True/False

Given the same duration, three different bonds yield to maturity will be different given that coupon rates are different.

Question 4

Answer: True

Question 5

Answer: False

Sarbanes Oxley act passed in 2002 set new standards that would oversee the rising accounting scandals, corporations were to allow independent audits to rate their bonds.


Questions: True/False

Question 6

Answer: True

Question 7

Answer: True

Question 8

Answer: True

Question 9

Answer: False


Questions: True/False

A junk bond is a bond that has a high probability of default and therefore pays higher yields to attract investors, and this does not mean it is in default.

Question 10

Answer: True

Question 11

Answer: True

Question 12

Answer: True


Questions: True/False

Reinvestment risk- risk that bonds may not earn the same amount earned by original bond

Question 13

Answer: True

Question 14

Answer: True

Yield to maturity increases if an investor buys a bond at a lower price


Questions: True/False

Question 15

Answer: True

Multiple Choice:

Question 16

Answer: E. none of the above

Fixed coupon bonds are not adjusted for interest rate change but floating rate bonds coupon value is adjusted to changes in interest rates.

Question 17

Face value = 1000

Duration 10 years


Questions: True/False

Coupon 80

Interest rate = 9%

Answer: A. $935.82

Question 18

Answer C. $828.81

Question 19

Answer: B. $1,111.58


Questions: True/False

Question 20

Answer: E. $978.40

Question 21

Answer E.

As interest rates fall, investors prefer coupon rate bonds, when interest rate increase coupon rates bonds become less desirable.

Question 22

Answer A.


Questions: True/False

Question 23

Answer B

As interest rates fall, investors prefer coupon rate bonds

Question 24

Answer D. $1,075

Question 25

Answer E.

All but one(only AAA are investment grade)


Questions: True/False

Question 26

Answer: C 9.2

2 yrs ago Default risk = rollin yield to maturity – risk free rate

2 yrs ago 2.8

Today it is half = 2.8/2=1.4

Risk free rate = 7.8

New bonds = 7.8+1.4=9.2

Question 27

Answer: D


Questions: True/False

Price of the bond today will be lower than price of the bond one year from now.

Question 28

Answer: B

Question 29

Answer: C

Junior debts paid after senior debts, have higher returns due to high default risk