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The prices of short-term bonds are commonly ____ those of long-term bonds.


A) more volatile than
B) equally volatile as
C) less volatile than
D) A and C occur with about equal frequency

E) A) and B)
F) A) and C)

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C

If the coupon rate of a bond is above the investor's required rate of return, the price of the bond should be below its par value.

A) True
B) False

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The valuation of bonds is generally perceived to be more difficult than the valuation of equity securities.

A) True
B) False

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False

If the Treasury issues an unusually large amount of bonds in the primary market, it places ____ on bond prices and ____ on yields to be earned by investors that purchase bonds and plan to holdthem to maturity.


A) downward pressure; downward pressure
B) downward pressure; upward pressure
C) upward pressure; upward pressure
D) upward pressure; downward pressure

E) A) and C)
F) A) and D)

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____ in the expected level of inflation results in ____ pressure on bond prices.


A) increase; upward
B) increase; downward
C) decrease; downward
D) none of the above

E) A) and B)
F) A) and C)

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When financial institutions expect interest rates to ____, they may ____.


A) increase; sell bonds and buy short-term securities
B) increase; sell short-term securities and buy bonds
C) decrease; sell bonds and buy short-term securities
D) B and C

E) A) and D)
F) None of the above

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If a financial institution's bond portfolio contains a relatively large portion of ____, it will be ____.


A) high-coupon bonds; more favorably affected by declining interest rates
B) zero- or low-coupon bonds; more favorably affected by declining interest rates
C) zero- or low-coupon bonds; more favorably affected by rising interest rates
D) high-coupon bonds; completely insulated from rising interest rates

E) B) and D)
F) B) and C)

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If the coupon rate ____ the required rate of return, the price of a bond ____ par value.


A) equals; equals
B) exceeds; is less than
C) is less than; is greater than
D) B and C
E) none of the above

F) B) and C)
G) A) and C)

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The prices of bonds with ____ are most sensitive to interest rate movements.


A) high coupon payments
B) zero coupon payments
C) small coupon payments
D) none of the above (The size of the coupon payment does not affect the sensitivity of bond prices to interest rate movements.)

E) B) and D)
F) All of the above

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Other things held constant, bond prices should increase when inflationary expectations rise.

A) True
B) False

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The process by which higher credit risk in one country is transmitted to another country is known as


A) credit epidemic.
B) credit expansion.
C) credit contagion.
D) none of the above

E) All of the above
F) None of the above

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A bond portfolio containing a large portion of zero-coupon bonds will be more favorably affected by declining interest rates than a bond portfolio containing no zero-coupon bonds.

A) True
B) False

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He appropriate discount rate for valuing any bond is the


A) bond's coupon rate.
B) bond's coupon rate adjusted for the expected inflation rate over the life of the bond.
C) Treasury bill rate with an adjustment to include a risk premium if one exists.
D) yield that could be earned on alternative investments with similar risk and maturity.

E) None of the above
F) B) and C)

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D

Stephanie would like to purchase a bond that has a par value of $1,000, pays $100 at the end of each year in coupon payments, and has three years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 12 percent, how much will Stephanie pay for the bond?


A) $1,000.00
B) $951.97
C) $856.80
D) none of the above

E) None of the above
F) All of the above

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Assume a bond with a $1,000 par value and an 11 percent coupon rate, two years remaining to maturity, and a 10 percent yield to maturity. The duration of this bond is


A) 1.90 years.
B) 1.50 years.
C) 1.92 years.
D) none of the above

E) A) and C)
F) C) and D)

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A $1,000 par value bond, paying $50 semiannually, with an 8 percent yield to maturity and five years remaining to maturity should sell for


A) $1,000.00.
B) $1,081.11.
C) $798.70.
D) $880.22.
E) none of the above.

F) B) and C)
G) A) and C)

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Which of the following formulas best describes the value of a bond?


A) Which of the following formulas best describes the value of a bond? A)   B)   C)   D)    E)  none of the above
B) Which of the following formulas best describes the value of a bond? A)   B)   C)   D)    E)  none of the above
C) Which of the following formulas best describes the value of a bond? A)   B)   C)   D)    E)  none of the above
D) Which of the following formulas best describes the value of a bond? A)   B)   C)   D)    E)  none of the above

E) none of the above

F) C) and D)
G) A) and B)

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Foreign investors anticipating dollar depreciation are less willing to hold U.S. bonds because the coupon payments will convert to less of their home currency.

A) True
B) False

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An increase in either the risk-free rate or the general level of the risk premium on bonds results in a higher required rate of return and therefore causes bond prices to increase.

A) True
B) False

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The value of ____-risk securities will be relatively ____.


A) high; high
B) high; low
C) low; low
D) none of the above

E) B) and D)
F) B) and C)

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