Questions 94 through 107 relate to Fixed Income. (21 minutes)
A 7.5% coupon, semiannual-pay, five-year bond has a yield to maturity of 6.80%. Over the next year, if the bond's yield to
maturity remains unchanged, its price will:
A)
increase.
B)
decrease.
C)
remain unchanged.
Question #95 of 120 Question ID: 1146204The type of credit risk that is most directly reflected in a bond's rating is:
default risk.
downgrade risk.
credit spread risk.
Question #96 of 120 Question ID: 1146215Both bonds will increase in value.
Both bonds will decrease in value.
One bond will increase in value and the other will
Question #97 of 120 Question ID: 1146181Which of the following statements about debt securities is least accurate?
Commercial paper is a short-term vehicle for corporate
borrowing.
A securitized bond is a security whose cash flows are
linked to a pool of underlying loans or financial
instruments.
A medium-term note (MTN) is a corporate bond with an
original maturity of 2 to 10 years.
Question #98 of 120 Question ID: 1146199Portfolio duration most accurately approximates the sensitivity of the value of a bond portfolio to:
parallel shifts in the yield curve.
increases in the slope of the yield curve.
decreases in the slope of the yield curve.
Question #99 of 120 Question ID: 1146206A firm is said to have a top-heavy capital structure if a high percentage of its total capital is:
debt.
short-term debt.
secured bank debt.
Question #100 of 120 Question ID: 1146197An 8%, semiannual pay, option-free corporate bond that is selling at par has ten years to maturity. What is the
approximate modified duration of the bond based on a 75 basis point change (up or down) in rates?
5.6.
6.8.
7.2.
Question #101 of 120 Question ID: 1146191The current 4-year spot rate is 4% and the current 5-year spot rate is 5.5%. What is the 1-year forward rate in four years?
9.58%.
10.14%.
11.72%.
Question #102 of 120 Question ID: 1146193A bond with nine years to maturity is quoted at an interpolated spread of +150 basis points. The benchmark yield for this
bond is:
a swap rate.
a matrix rate.
a government bond yield.
Question #103 of 120 Question ID: 1146188The face value of a $1,000,000 T-bill with 78 days to maturity is priced at $987,845. What is the bank discount yield
(annualized) quote for the T-bill?
5.61%.
5.67%.
5.75%.
Question #104 of 120 Question ID: 1146195A 10-year note issued by Gaullic Finance will be paid from a bankruptcy-remote pool of Gaullic's balance sheet assets.
These notes are best described as:
covered bonds.
securitized bonds.
asset-backed bonds.
Question #105 of 120 Question ID: 1146196Extension in an agency residential mortgage-backed security is most likely to result from:
a decrease in interest rates.
exhaustion of a support tranche.
Question #106 of 120 Question ID: 1146184A hedge fund manager is estimating a value for a non-traded bond of Yoder Company. The bond has an annual-pay 6%
coupon, matures in six years, and has a CCC credit rating. Actively traded annual-pay bonds with similar credit ratings
include the following:
Coupon Maturity Yield to maturity
8% 5 years 9.45%
5% 5 years 9.55%
7% 10 years 10.00%
Based on matrix pricing, the value of the Yoder bond as a percentage of par is closest to:
83.9.
84.1.
84.5.
Question #107 of 120 Question ID: 1146200Consider two option-free, 5% annual-pay bonds from the same issuer and with the same seniority. One of the bonds has
a modified duration of 3.5 and approximate convexity of 15. The other has a modified duration of 8.5 and approximate
convexity of 75. Can the lower- duration bond have more price volatility than the higher-duration bond?
No, because it also exhibits lower convexity.
Yes, because shifts in the yield curve may be non-
parallel.
No, because its price will respond relatively less in
response to changes in yield.
Question #108 of 120 Question ID: 1146222
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