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

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

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Q20 If the market price of a bond is greater than the intrinsic value of bond, then the bond is evaluated as a. Bond is undervalued and can buy b. Bond is undervalued and can sell c. Bond is overvalued and can buy d. Bond is overvalued and can sell
23
yield to maturity implies a bond price. a. lower; lower b. higher; lower c. higher; higher d. None of the above A.
QUESTION 2 Which of the following statements about bond is incorrect? A. • The longer the maturity, the more sensitive the bond's price to changes in yield to maturity. B. Yield to maturity assumes that all bond coupons can be reinvested at the same level of yield to maturity. The relationship between bond prices and yields to maturity is convex. D. The relationship between bond prices and yields to maturity is inverse. E. For a premium bond, the coupon rate is smaller than current yield.
Which of the following statements is false? O None of the choices. O Factors affecting bond yields include default risk, liquidity, interest rate risk, and expected future inflation. Bonds that don't payout interim coupon payments are called zero-coupon bonds. O YTM is the discount rate that equates the present value of future cash flows and current price of the bond. C If coupon rate is equal to YTM, the bond price equals the par value. Which of the following statement regarding common stock is false? C You may or may not get paid a dividend by owning a common stock. O If you don't receive a dividend, you can complain to your friend but cannot make any legal action. C Owning a common stock essentially means that you own a part of the firm. C By owning a common stock, you can cast your vote in a shareholder's meeting. C None of the choices.
A bond will sell at a premium when its coupon interest rate: is lower than the market interest rate on similar bonds. O exceeds the market interest rate on similar bonds. O varies more than the market interest rate on similar bonds. O equals the market interest rate on similar bonds.
The contract interest rate for bonds:A. must equal the effective interest rate.B. is greater than the effective interest rate when bonds are issued at a discount.C. has no relation to the cash flow associated with a particular bond.D. will fluctuate over the life of a bond.E. None of these.
Bonds can be rate bonds with a constant coupon rate over the life of the bond, or they can be rate bonds with a coupon rate that varies over time depending on the level of interest rates. A. floating B. zero C. fixed
All else the same, a will decrease the required return on a bond. Select one: O a. sinking fund O b. increase in the size of a bond issuance O c. lower bond rating O d. call provision O e. increase in inflation
不 Which of the bonds A to D is most sensitive to a 1%drop in interest rates from Consider the following bonds: 6.5% to 5.5% Which bond is least sensitive? Bond Data table is most sensitive. (Select from the drop-down menu.) (Click on the following icon in order to copy its contents into a spreadsheet.) Bond A BC D Coupon Rate (annual payments) 0.0% 0.0% 4.3% 7.7% Print Done Maturity (years) 10 15 15 10
The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change

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