Ch. 18, Chapter 18: Bonds: Analysis and Strategy
Multiple Choice Questions
1. Bond investors can avoid the risk that interest rates will rise and incur capital losses by:
a. buying zero coupon bonds.
b. buying Treasury bonds with maturities of one year or longer.
c. holding bond funds till maturity.
d. holding individual bonds till maturity.
Ans: d
Difficulty: Easy
Ref: Why Buy Bonds?
2. Which of the following statements is true regarding investments in bonds?
a. shorter maturities should return more than longer maturities, in general
b. Treasury bonds should return more than corporate bonds of the same maturity
c. longer maturities should return more than shorter maturities, in general
d. lower-rated issues should return less than higher rated issues at maturity.
Ans: c
Difficulty: Moderate
Ref: Why Buy Bonds?
3. The introduction of the Euro is expected to:
a. increase the transactions cost of trading foreign bonds.
b. decrease the transactions cost of trading foreign bonds.
c. have no effect on the transactions cost of trading foreign bonds.
d. have a minimal effect on the transactions cost of trading foreign bonds.
Ans: b
Difficulty: Moderate
Ref: Why Buy Bonds?
4. Which of the following is considered to have the biggest impact on bond yields?
a. economic growth
b. business cycles
c. inflation
d. Federal Reserve actions
Ans: c
Difficulty: Moderate
Ref: Important Considerations in Managing a Bond Portfolios
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, 5. The term structure of interest rates is also known as the:
a. yield to maturity.
b. probability distribution.
c. yield differential.
d. yield curve.
Ans: d
Difficulty: Easy
Ref: Important Considerations in Managing a Bond Portfolios
6. Under the expectations theory, investors expecting interest rates to rise will:
a. invest more now in short term bonds rather than in long term bonds.
b. invest more now in long term bonds rather than in short term bonds.
c. invest more now in Treasury bonds rather than in corporate bonds.
d. invest more now in corporate bonds rather than in Treasury bonds.
Ans: a
Difficulty: Difficult
Ref: Important Considerations in Managing a Bond Portfolios
7. Floating rate bonds often have yields tied to:
a. London Interbank Offered Rate (LIBOR) plus some percentage yield amount.
b. London Interbank Offered Rate (LIBOR).
c. European Central Bank (ECB) borrowing rate.
d. Federal Funds overnight lending rate.
Ans: a
Difficulty: Moderate
Ref: Why Buy Bonds?
8. Since the 1930s, the yield curve has most often been:
a. upward sloping yield curve.
b. downward sloping yield curve.
c. flat yield curve.
d. skewed yield curve.
Ans: a
Difficulty: Easy
Ref: Important Considerations in Managing a Bond Portfolios
9. We can think of duration as the slope of a line that is tangent to the convex:
a. price-yield curve at the expected future price and expected yield of the bond.
b. price-yield curve at the current price and expected yield of the bond.
c. price-yield curve at the current price of the bond.
Chapter Eighteen 229
Bonds: Analysis and Strategy
Multiple Choice Questions
1. Bond investors can avoid the risk that interest rates will rise and incur capital losses by:
a. buying zero coupon bonds.
b. buying Treasury bonds with maturities of one year or longer.
c. holding bond funds till maturity.
d. holding individual bonds till maturity.
Ans: d
Difficulty: Easy
Ref: Why Buy Bonds?
2. Which of the following statements is true regarding investments in bonds?
a. shorter maturities should return more than longer maturities, in general
b. Treasury bonds should return more than corporate bonds of the same maturity
c. longer maturities should return more than shorter maturities, in general
d. lower-rated issues should return less than higher rated issues at maturity.
Ans: c
Difficulty: Moderate
Ref: Why Buy Bonds?
3. The introduction of the Euro is expected to:
a. increase the transactions cost of trading foreign bonds.
b. decrease the transactions cost of trading foreign bonds.
c. have no effect on the transactions cost of trading foreign bonds.
d. have a minimal effect on the transactions cost of trading foreign bonds.
Ans: b
Difficulty: Moderate
Ref: Why Buy Bonds?
4. Which of the following is considered to have the biggest impact on bond yields?
a. economic growth
b. business cycles
c. inflation
d. Federal Reserve actions
Ans: c
Difficulty: Moderate
Ref: Important Considerations in Managing a Bond Portfolios
Chapter Eighteen 228
Bonds: Analysis and Strategy
, 5. The term structure of interest rates is also known as the:
a. yield to maturity.
b. probability distribution.
c. yield differential.
d. yield curve.
Ans: d
Difficulty: Easy
Ref: Important Considerations in Managing a Bond Portfolios
6. Under the expectations theory, investors expecting interest rates to rise will:
a. invest more now in short term bonds rather than in long term bonds.
b. invest more now in long term bonds rather than in short term bonds.
c. invest more now in Treasury bonds rather than in corporate bonds.
d. invest more now in corporate bonds rather than in Treasury bonds.
Ans: a
Difficulty: Difficult
Ref: Important Considerations in Managing a Bond Portfolios
7. Floating rate bonds often have yields tied to:
a. London Interbank Offered Rate (LIBOR) plus some percentage yield amount.
b. London Interbank Offered Rate (LIBOR).
c. European Central Bank (ECB) borrowing rate.
d. Federal Funds overnight lending rate.
Ans: a
Difficulty: Moderate
Ref: Why Buy Bonds?
8. Since the 1930s, the yield curve has most often been:
a. upward sloping yield curve.
b. downward sloping yield curve.
c. flat yield curve.
d. skewed yield curve.
Ans: a
Difficulty: Easy
Ref: Important Considerations in Managing a Bond Portfolios
9. We can think of duration as the slope of a line that is tangent to the convex:
a. price-yield curve at the expected future price and expected yield of the bond.
b. price-yield curve at the current price and expected yield of the bond.
c. price-yield curve at the current price of the bond.
Chapter Eighteen 229
Bonds: Analysis and Strategy
