1.

Which one of the following statements is correct regarding the yield to maturity of a

bond?

A) It is similar to the current yield as it takes into account only the interest

income payable on the bond.

B) it will always be greater than the yield to call since the time horizon is longer.

C) It does not take into account the reinvestment of interest income from the

bond.

D) It is calculated in the same way as the IRR for a capital budgeting project.

2.

Which one of the following statements regarding the risk premium affecting market

interest rates is false?

A) The risk premium is additional compensation demanded by investors for the

risk involved.

B) The risk premium is not reflected in the price of the security.

C) The risk premium is by definition a negative amount.

D) The risk premium results in a yield differential.

3.

Which of the following statements about bond prices is true?

A) Bond price volatility and bond coupon rates are inversely related.

B) Bond prices move directly to bond yields.

C) A decrease in yields raises prices less than an increase in yields lowers prices.

( D) Bond price volatility and time to maturity are inversely related.