FIN 3312 TXST Exam 3 Review questions
well answered to pass
As discussed in class, when a fixed coupon bond has a coupon rate less than its
YTM, the bond price must:
A. sell at par
B. sell at a discount
C. sell at a premium
D. decrease each year as time passes
E. not change since it's a fixed coupon - correct answer ✔✔C. sell at a premium
The relationship between market rates and the price risk impact is:
A. Uncorrelated
B. Indeterminate
C. Direct
D. Positive
E. Inverse - correct answer ✔✔E. Inverse
As discussed in class, an "inverted" yield curve implies __________ according to
the pure expectations theory?
A. higher interest rates in the future
B. short term rates are lower than long term rates
C. an increase in expected inflation
,D. in all likelihood we are going into a recession
E. investors expect inflation to be constant - correct answer ✔✔D. in all likelihood
we are going into a recession
The yield curve - correct answer ✔✔D. is a graphical depiction of term structure
of interest rates usually depicted for U.S. Treasuries in order to hold risk constant
across m
Consider two bonds, A and B. Both bonds presently are selling at their par value of
$1,000. Each pays interest of $120 annually. Bond A will mature in five years, while
bond B will mature in ten years. If the yields to maturity on the two bonds change
from 12% to 10%,
A. both bonds will increase in value, but bond A will increase more than bond B.
B. both bonds will increase in value, but bond B will increase more than bond A.
C. both bonds will decrease in value, but bond A will decrease more than bond B.
D. both bonds will decrease in value, but bond B will decrease more than bond A.
- correct answer ✔✔B. both bonds will increase in value, but bond B will increase
more than bond A.
A $1,000 par value bond matures in seven years, has an annual coupon rate of
7.50%, and has a yield to maturity of 6.23%. What is the current market price of
the bond?
A. $1,070.32
B. $947.21
C. $959.58
D. $1,041.49
, E. $962.40 - correct answer ✔✔A. $1,070.32
Solve for PV
N=7
I% = 6.23
PV =??
PMT = 75 ( i guess get rid of decimal point?)
FV = 1000
PV = 1070.32
Assume you purchase a bond from Texas Republic and it has 8 years remaining
until maturity and that you will not sell it prior to maturity. Further, when you
purchased the bond, it was priced at $875.80 The bond has an annual coupon rate
of 4%. What is the bond's yield to maturity?
A. 6%
B. 2%
C. 4%
D. 9%
E. 8% - correct answer ✔✔A. 6%
Solve for I%
n=8
I% = ??
PV = -875.8
PMT = 1,000 x 0.04
well answered to pass
As discussed in class, when a fixed coupon bond has a coupon rate less than its
YTM, the bond price must:
A. sell at par
B. sell at a discount
C. sell at a premium
D. decrease each year as time passes
E. not change since it's a fixed coupon - correct answer ✔✔C. sell at a premium
The relationship between market rates and the price risk impact is:
A. Uncorrelated
B. Indeterminate
C. Direct
D. Positive
E. Inverse - correct answer ✔✔E. Inverse
As discussed in class, an "inverted" yield curve implies __________ according to
the pure expectations theory?
A. higher interest rates in the future
B. short term rates are lower than long term rates
C. an increase in expected inflation
,D. in all likelihood we are going into a recession
E. investors expect inflation to be constant - correct answer ✔✔D. in all likelihood
we are going into a recession
The yield curve - correct answer ✔✔D. is a graphical depiction of term structure
of interest rates usually depicted for U.S. Treasuries in order to hold risk constant
across m
Consider two bonds, A and B. Both bonds presently are selling at their par value of
$1,000. Each pays interest of $120 annually. Bond A will mature in five years, while
bond B will mature in ten years. If the yields to maturity on the two bonds change
from 12% to 10%,
A. both bonds will increase in value, but bond A will increase more than bond B.
B. both bonds will increase in value, but bond B will increase more than bond A.
C. both bonds will decrease in value, but bond A will decrease more than bond B.
D. both bonds will decrease in value, but bond B will decrease more than bond A.
- correct answer ✔✔B. both bonds will increase in value, but bond B will increase
more than bond A.
A $1,000 par value bond matures in seven years, has an annual coupon rate of
7.50%, and has a yield to maturity of 6.23%. What is the current market price of
the bond?
A. $1,070.32
B. $947.21
C. $959.58
D. $1,041.49
, E. $962.40 - correct answer ✔✔A. $1,070.32
Solve for PV
N=7
I% = 6.23
PV =??
PMT = 75 ( i guess get rid of decimal point?)
FV = 1000
PV = 1070.32
Assume you purchase a bond from Texas Republic and it has 8 years remaining
until maturity and that you will not sell it prior to maturity. Further, when you
purchased the bond, it was priced at $875.80 The bond has an annual coupon rate
of 4%. What is the bond's yield to maturity?
A. 6%
B. 2%
C. 4%
D. 9%
E. 8% - correct answer ✔✔A. 6%
Solve for I%
n=8
I% = ??
PV = -875.8
PMT = 1,000 x 0.04
