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FINS2624-Portfolio Mgmt - s1/2013

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Take Test: Online quiz 1

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Instructions
Multiple Attempts This Test allows 3 attempts. This is attempt number 1.
Force Completion This Test can be saved and resumed later.

Question 1

10 points

All else equal, the price and yield on a bond are

positively related.
negatively related.
sometimes positively and sometimes negatively related.
not related.
indefinitely related.

Question 2

10 points

A 10-year zero coupon bond with a face value of $100 is trading in the market. How much money would you
have to deposit in a bank to replicate its cash flows?

FV / (1+r

)
10
FV / (1+r )
1
FV * (1+r )
1
FV
FV / (1+r )
10

10

Question 3

10 points

A coupon bond is a bond that _________.

pays interest on a regular basis
does not pay interest on a regular basis but pays a lump sum at maturity
can always be converted into a specific number of shares of common stock in the issuing company
always sells at face value
none of the above

Question 4

10 points

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The yield to maturity on a bond is ________.

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below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells
at a premium.
the discount rate that will set the present value of the payments equal to the bond price.
based on the assumption that any payments received are reinvested at the coupon rate.
none of the above.
A, B, and C.

Question 5

10 points

Consider an exotic bond that pays an annual coupon of $20 and matures in 15 years but has no face value.
Assume that the interest rate is 4% for all maturities. What would the bond trade for?
$222.37
$300.00
$166.58
$225.14

Question 6

10 points

Arbitrage traders rely on...

... superior earnings forecasts
... predictable relationships between the prices of two or more assets
... technical analysis
All of the above

Question 7

10 points

The yield to maturity of a bond is

... a hypothetical constant interest rate that would give the observed bond price
... the return an investor would earn if she bought the bond today and held it until maturity
... a convenient way to describe all the interest rates that are at work in the pricing of a particular bond
... a property of individual bonds (rather than of the market)
All of the above

Question 8

10 points

Of the assumptions below, the most likely to hold in practice is:

Complete markets
Arbitrage-free prices
Zero transaction costs
No default risk
Constant interest rates

Question 9

10 points

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Consider a bond with a face value of $100, paying an annual coupon of $20 and maturing in two years. The
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one-year interest rate is 10% (y = 10%) and the two-year interest rate is 7% (y = 7%). What is the yield1
2
to-maturity of the bond?
6.83%
7.24%
10.00%
10.91 %

Question 10

10 points

Suppose you are faced with the following interest rates:

y = 9%
1
y2 = 10%
y3 = 11%
Now consider a bond with a $100 face value maturing in three years. The bond pays annual coupon
payments at a 5% coupon rate. How much would it cost? Answer with one decimal point.
85.5

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