Periodically rebalancing a portfolio so that the duration continues to match the target date is called: 23. The difference in the price of the three year bond for a change in the yield-to-maturity from 4. What is the dollar amount of each semiannual interest payment if you own 6 of these bonds? On January 1, Franco Inc. The yield-to-maturity assumes which one of the following? In May 2007, here is how you might do it. Zero-coupon bond: Zero-coupon bonds are bonds that pay no coupons but do pay a par value at maturity. How many months of accrued interest are included in the dirty price of these bonds? Dynamic immunization is primarily aimed at reducing which one of the following risks? Chapter 14 Bond Prices and Yields Multiple Choice Questions 1. Calculate Problem 7-2, at the end of Chapter 7 in your text, Fundamentals of Financial Management, and show your.
Assume today is January 1. A dedicated portfolio is a bond portfolio created to: 19. Just as the crisis is transforming the financial system and government policy, it is transforming the study of money and banking. To earn a high rating from the bond rating agencies, a firm should have A. The pool is sliced into tranches, with each tranche assigned a different level of seniority in terms of its claims on the cash flows from the underlying loans. When appropriate, unnecessary mathematical and technical detail has been avoided in order to emphasize and build the intuitive skills for future business professionals and practitioners. They are issued at or near par value, with their prices quoted net of accrued interest.
Finally, Theorem 4 can be illustrated by considering the percentage change in price differences between the 3- and 6-year bonds 86% vs. A debenture bond is a an : unsecured bond. In the hands of the person who has acquired the bond it is an asset. If you have any questions or would like a receive a sample chapter before your purchase, please contact us via email:. A premium bond is defined as a bond that: 5. A one percent decrease in interest rates results in a price increase of about -4.
For premium bonds, the coupon rate is greater than the current yield, which is greater than the yield to maturity. An issuer has a bond outstanding that matures in 18 years. Which one of the following statements is correct concerning discount bonds? When the yield falls below the coupon rate to 4. Bonds often are issued with a period of call protection. Chapter 14 Firms in Competitive Markets Multiple Choice 1.
They are similar to an insurance policy in that the investor receives coupons and par value, but takes a loss in part or all of the principal if a major insurance claim is filed against the issuer. Treasury bills Only Treasury issues are insured by the U. This interpretation is subject to error, however. Test bank for Money Banking and Financial Markets 3rd Edition by Stephen G. Which one of the following statements applies to a par value bond? The rate of return an investor actually earns from owning a bond is called which one of the following? Which one of the following must be equal for two bonds if they are to have similar changes in their prices given a relatively small change in bond yields? The value of the bonds will immediately decline, but the decline in the bond's value will be offset by the fact that coupon payments received by the portfolio can be reinvested at 8. Serial bond: A serial bond is an issue in which the firm sells bonds with staggered maturity dates.
Which one of the following statements is correct concerning Macaulay duration? The value of the bond will increase immediately and then decline over time until it reaches maturity twenty years hence. Go to and type solution manual or test bank name you want in search box. High seniority tranches are usually quite safe, with credit risk concentrated on the lower level tranches. A book store that has market power can a. Related measures are yield to call, realized compound yield, and expected versus promised yield to maturity. Bonds which do not pay interest unless the issuing company is profitable are called: income bonds. The ladder portfolio will protect you from income declines for a number of years if the low interest rate trend persists.
The yield that a bond will earn given that it is bought back by the issuer at the earliest possible date is the: 13. Which of the following will increase if the coupon rate increases? According to the policy of dynamic immunization, you should now modify your portfolio in which one of the following ways? By calculating the present and future value of bonds, managers can make sound decisions about their potential strengths and weaknesses as investments. . To immunize your portfolio, you should: 48. A model is an abstraction of a real system. Go to and type solution manual or test bank name you want in the search box. Corporate bonds: issued by companies Our main interest in relation to bonds is in corporate bonds.
Which one of the following is the risk that market interest rates may increase causing the price of a bond to decline? Which one of the following will decrease the current yield of a bond? All else constant, which of the following will decrease the Macaulay duration of a straight bond? What is the current yield? A bond that matures in installments is called a: serial bond. In a discrete-event simulation, an event is an interaction between objects in the system. Very similar to the payback period approach in capital budgeting. The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the bond indenture. Bond issue costs are recorded as a n : deferred charge. The worldwide financial crisis of 2007-2009 was the most severe since that of the 1930s, and the recession that followed was the most widespread and costly since the Great Depression. Instant download Test bank for Money Banking and Financial Markets 3rd Edition by Stephen G.