When someone quotes you a "spot rate," when would borrowing or lending begin? O now O in the future O in the past Question 3 If market interest rates for BBB debt are 6%, and GM (a BBB issuer) issues a bond with a 5% coupon, the bond will likely trade: O at a discount. O at par O at a premium Question 4 The yield-to-maturity of a bond is the same as the: O internal rate of return O risk-free rate. O market risk premium Question 5 When an investor is looking for a real return of 5% and inflation is expected to be 2%, what nominal yield would the investor require? O 7% O 3% O 5% 1 pts 1 pts 1 pts Question 6 The relationship between the price of a bond and the market interest rate is usually what (if the bond is not callable): O convex O linear O sinusoidal Question 7 Your broker quotes a bond to you at $101.23. You decide to buy 10 bonds for $1012.30. Will your broker accept your payment? O No, you must include accrued interest O No, each bond is $1000, so you will need to send him at least $10,123 O All of the above Question 8 What is the difference between yield-to-maturity and yield-to-worst? O Yield-to-worst is return for bond if it gets called on the first possible call date O Yield-to-worst is return if the bond defaults O Yield-to-worst doesn't include interest payments 1 pts 1 pts 1 pts Question 9 Jimmy owns a bond with a 9% coupon that matures in three years. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closest to: O 95 O 100 O 105 Question 10 A bond offers an annual coupon rate of 6%, with interest paid semiannually. The bond matures in eight years. At a market discount rate of 3%, the price of this bond per 100 of par value is closest to: O 121 O 100 O 79 Question 11 Reputable bond dealers most often quote: O The flat price O The full price O The full price plus accrued interest 1 pts 1 pts 1 pts Question 12 All bonds are of equal credit quality, which bond is most attractive? Coupon Rate 5.0% 6.7% 5.0% 15.0% Bond a b d O b O a Oc Od Question 13 Price $ 101.88 $ 100.00 $ 97.32 $ 150.00 A bond portfolio full of non-callable bonds is expected to fall by 8% if interest rates move up 1%. If interest rates move down 1%, the portfolio will most likely: O Increase by more than 8% O Increase by 8% Term 6 3 2 5 O Increase by less than 8% 1 pts 1 pts D Question 14 You can derive a more precise price of a bond if you discount each coupon by the spot rate that corresponds with the timing of the cashflow. Bond X is an 8% coupon rate, 3 year bond. Here is the current term structure: Time-to- Maturity 1 year 2 years 3 years O 95.28 O 99.76 O 105.25 What is the price of Bond X? Spot Rates 8% 9% O spot curve 10% Question 15 O par curve A yield curve constructed from a sequence of yields-to-maturity on zero-coupon bonds is the: O forward curve 1 pts 1 pts