Bond Test #2

A bond is trading at a premium. Which of the following statements is most likely true?

• a) The bond's coupon rate is lower than the yield to maturity (YTM).

• b) The bond's coupon rate is higher than the yield to maturity (YTM).

• c) The bond's price is equal to its face value.

• d) The bond's yield to maturity (YTM) is equal to the coupon rate.

Alex has been advised that an interest rate increase is expected soon. If Alex buys bonds before the announcement, what is most likely to happen to the bond price after the announcement?

• The bond price will decrease, and Alex will incur a loss

• The bond price will fluctuate wildly.
• The bond price will increase, and Alex will make a profit.

• The bond price will decrease, but Alex will make a profit.

2)Which of the following factors has a greatest impact on a bond's price volatility?

• The bond's face value.

• The bond’s coupon rate.

• The bond’s maturity.

• Credit rating

A bond is trading at a discount. Which of the following statements is most likely true?

• a) The bond's coupon rate is higher than the yield to maturity (YTM).

• b) The bond's coupon rate is lower than the yield to maturity (YTM).

• c) The bond's price is equal to its face value.

• d) The bond's yield to maturity (YTM) is equal to the coupon rate.

If markets expect a recession, which is likely to lead to reduced interest rates in the near- to mid-term, what would you most likely observe in the yield curve?

• The yield curve will be upward-sloping, with long-term rates higher than short-term rates

• The yield curve will be flat, with short-term and long-term rates the same

• The yield curve will be steep, with short-term rates much lower than long-term rates.

• The yield curve will be inverted, with short-term rates higher than long-term rates.

According to the liquidity preference theory, why do investors generally prefer short-term bonds over long-term bonds?

• Short-term bonds offer higher returns

• Short-term bonds are more liquid and less volatile.

• Short-term bonds are more sensitive to interest rate changes

• Short-term bonds are riskier than long-term bonds

What happens to the price of a high-duration bond when interest rates increase?

• The price decreases significantly.

• The price increases significantly.

• The price decreases slightly

• The price remains unchanged.

What is the relationship between bond prices and yields?

• Bond prices and yields always move in the same direction.

• When bond prices increase, bond yields also increase

• When bond yields rise, bond prices fall, and when yields fall, bond prices rise.

• Bond prices remain constant regardless of yields.

If a bond’s yield is higher than its coupon rate, how will the bond likely trade?

• The bond will likely trade at a premium.
• The bond will likely trade at par value.
• The bond will likely not trade at all.
• The bond will likely trade at a discount.

Under the expectations hypothesis, how does a downward-sloping yield curve relate to future interest rate expectations?

• It suggests that future interest rates will increase.

• It suggests that future interest rates will decrease.

• It suggests that interest rates will remain unchanged.

• It suggests that the market expects more volatility in interest rates