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QUESTION 40

1. An investor has a two-year horizon. He buys a bond with a yield of 4% and a maturity longer than his horizon. He expects to reinvest any coupons at a 4% interest rate. He also expects the bond s yield on his horizon date to be 3.75%. What is his expected Rate-of-Return?

   		below 3.75%
   		between 3.75% and 4%
   		4%
   		above 4%

2 points

QUESTION 41

1. Compare a five-year Real bond with a five-year Nominal (Ordinary) bond. A change in the five-year real interest rate will affect the price of:

   		the Real bond but not the Nominal
   		both the Real and Nominal bond
   		neither the Real nor the Nominal bond
   		the Nominal bond but not the Real

2 points

QUESTION 42

1. A twenty-year bond has a 5% coupon and 5% yield-to-maturity. If the maturity is lengthened by two years with the yield unchanged:

   		its price decreases and duration increases
   		its price increases and duration decreases
   		its price is unchanged and duration increases
   		its price is unchanged and duration decreases
   		its price and duration both increase
   		its price and duration both decrease

2 points

QUESTION 43

1. A floating rate note remains near par in the face of interest rate movements because:

   		its coupon is fixed
   		its coupon adjusts to prevailing interest rates in the market
   		its price is fixed by regulation
   		it is always senior in the issuer s capital structure

2 points

QUESTION 44

1. In which of the following situations should you prefer inflation protected bonds over ordinary bonds of the same maturity?

   		You expect inflation
   		You expect inflation to rise
   		You expect inflation to rise more than the market expects
   		You expect no inflation

2 points

QUESTION 45

1. Investment-grade (IG) and speculative-grade (SG) debt differ in that:

   		IG pays interest, SG does not
   		IG is rated above BB by rating agencies, SG is rated below BBB
   		only IG is purchased by investors; only SG by speculators
   		IG is rated between AAA and A by rating agencies, SG is rated between BBB and B
   		only SG bonds present credit risk

2 points

QUESTION 46

1. A corporate bond yields 4.4%. A Treasury of the same maturity yields 3%. The corporate is callable. What is its credit spread?

   		1.4%
   		less than 1.4%
   		more than 1.4%

2 points

QUESTION 47

1. An investor purchases a bond with a maturity longer than his/her horizon. All else the same: Choose Two, 1 point each

   		the lower the initial yield-to-maturity of the bond, the greater the rate-of-return
   		the lower the yield-to-maturity on the horizon date the greater the rate-of-return
   		the higher the initial yield-to-maturity of the bond, the greater the rate-of-return
   		the higher the yield-to-maturity on the horizon date the greater the rate-of-return

2 points

QUESTION 48

1. An investor purchases a thirty-year, five-percent coupon bond. Which of the following is true? Choose Two , 1 point each

   		The longer the investor s horizon, the more important the reinvestment rate is for her Rate-of-Return.
   		The longer the investor s horizon, the less important the reinvestment rate is for her Rate-of-Return.
   		The longer the investor s horizon, the more important the bond s yield on her horizon date is for her Rate-of-Return.
   		The longer the investor s horizon, the less important the bond s yield on her horizon date is for her Rate-of-Return.

2 points

QUESTION 49

1. Duration:

   		measures the average waiting time for an asset s present value dollar
   		approximates the effect of a change in yield on a bond s price
   		changes as yield-to-maturity changes
   		is measured in years
   		all of the above

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