ch-8 finance 385

Question 11 pts

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

	small coupon payments
	zero coupon payments

	high coupon payments
	none of the above (The size of the coupon payment does not affect sensitivity of bond prices to interest rate movements.)

 

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Question 21 pts

An expected ____ in economic growth places ____ pressure on bond prices.

	increase; upward
	none of the above

	decrease; downward
	increase; downward

 

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Question 31 pts

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

	high coupon bonds; completely insulated from rising interest rates
	high coupon bonds; more favorably affected by declining interest rates

	zero or low coupon bonds; more favorably affected by rising interest rates
	zero or low coupon bonds; more favorably affected by declining interest rates

 

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Question 41 pts Skip to question text.

An insurance company purchases corporate bonds in the secondary market with six years to maturity. Total par value is $55 million. The coupon rate is 11 percent, with annual interest payments. If the expected required rate of return in 4 years is 9 percent, what will the market value of the bonds be then?

	$55,000,000
	$56,935,022

	$55,341,216
	$52,115,093

 

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Question 51 pts

As interest rates consistently decline over a specific period, the market price of a bond you own would likely ____ over this period. (Assume no major change in the bond's default risk.)

	consistently increase
	change in a direction that cannot be determined with the above information

	remain unchanged
	consistently decrease

 

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Question 61 pts Skip to question text.

Consider a coupon bond that sold at par value two years ago. If interest rates are much higher now than when this bond was issued, the coupon rate of that bond will likely be ____ the prevailing interest rates, and the present value of the bonds will be ____ its par value.

	below; above
	above; below

	below; below
	above; above

 

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Question 71 pts

If bond portfolio managers expect interest rates to decrease in the future, they would likely ____ their holdings of bonds now, which could cause the prices of bonds to ____ as a result of their actions.

	increase; decrease
	increase; increase

	decrease; decrease
	decrease; increase

 

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Question 81 pts

Which of the following will most likely cause bond prices to increase? (Assume no possibility of higher inflation in the future.)

	reduced Treasury borrowing along with anticipation that money supply growth will increase
	higher levels of Treasury borrowing and corporate borrowing

	reduced Treasury borrowing along with anticipation that money supply growth will decrease
	an anticipated drop in money supply growth along with increasing Treasury borrowing

 

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Question 91 pts

If the United States announces that it will borrow an additional $10 billion, this announcement will normally cause the bond traders to expect

	higher interest rates in the future, and will buy bonds now.
	lower interest rates in the future, and will sell bonds now.

	lower interest rates in the future, and will buy bonds now.
	higher interest rates in the future, and will sell bonds now.

stable interest rates in the future, and will buy bonds now.

 

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Question 101 pts

If the coupon rate equals the required rate of return, the price of the bond

	is negligible.
	should be equal to its par value.

	should be below its par value.
	should be above its par value.