Deck 5: Bond Prices and Interest Rate Risk

Question 1

Price risk is one aspect of interest rate risk.

Answer 1

True

Question 2

A zero coupon bond has no reinvestment risk.

Answer 2

True

Question 3

The higher the coupon rate, the lower the bond price volatility.

Answer 3

True

Question 4

Bonds with lower coupon rates have a shorter duration than similar bonds with high coupon rates.

Question 5

If market interest rates have increased since a bond was purchased the coupon rate will also increase.

Question 6

If the coupon rate equals the market rate, a bond is likely to be selling at a discount.

Question 7

Duration is a measure of interest rate volatility.

Question 8

The duration of a coupon bond must be shorter than its term to maturity.

Question 9

The price risk of a bond tends to offset reinvestment risk somewhat as market interest rates vary.

Question 10

Once bonds are issued, the coupon rate varies inversely with bond prices.

Question 11

The realized yield may be influenced by coupon reinvestment rates.

Question 12

Short-term bonds have greater price risk compared to long-term bonds.

Question 13

Price risk is of no concern to the investor if the bond is held to maturity.

Question 14

Price risk is an aspect of bond volatility.

Question 15

The price of a bond is the present value of future payments discounted at the coupon rate.

Question 16

Yield to maturity assumes reinvestment of coupons at the same yield.

Question 17

The price of a bond and the market rate of interest are inversely related.

Question 18

The duration of a zero coupon bond equals the term to maturity of the bond.

Question 19

A short-term bond's price risk is not as large as a long term bond's price risk.

Question 20

The coupon rate is always the same as the market rate of interest for a bond.

Question 21

Ceteris paribus, the holder of a fairly priced premium bond must expect a capital gain over their holding period.

Question 22

Expected yield is essentially a forecast.

Question 23

A bond with a 9% coupon and a 10% required return will sell at a premium to par.

Question 24

The higher the starting interest rate the lower the bond's price sensitivity.

Question 25

What is bond duration and what are the implications of holding a bond to its duration versus holding the bond to maturity?

Question 26

Duration matching eliminates all risk.

Question 27

What are the relationships between bond price volatility and bond maturity; coupon rate?

Question 28

Define and discuss interest rate risk. What are the two risk components of interest rate risk and how do these interact with each other?

Question 29

A zero-coupon bond bears no interest.

Question 30

Name and discuss the factors that must be considered when calculating the realized rate of return on a bond.

Question 31

Curation matching eliminates the risk to an investor's real rate of return.

Question 32

Name and discuss the variables that determine the price or value of a fixed-rate coupon bond.