1. Holding all else constant, the lower the future value of an investtment:
A) The higher the present value.
B) The lower the present value.
C) The future value doesn't impact the present value, only the interest rate really matters.
D) The lower the present value because the interest rate must fall.
2. Consider an investment returning $1400 half of the time and $700 half of the time. The expected value is:
A) $1250
B) $1050
C) $1100
D) $2100
3. For a bond priced at face value
A) The current yield will equal the coupon rate.
B) The yield to maturity will be less the coupon rate.
C) The yield to maturity will be greater than the coupon rate.
D) they are no coupon payments.
4. Suppose the risk on foreign government bonds RISES relative to US Treasury bonds. We should expect what impact on the price of US Treasury bonds:
A) No impact since US Treasury bonds are free of default risk.
B) the price rises as U.S. bonds are more attractive, causing their yield to fall.
C) the price and yield rise for U.S. bonds as they are more attractive.
D) the price falls as U.S. bonds are not as attractive, causing their yield to rise.
5. If a bond's rating is downgraded from Aa to Baa:
A) It should cause the bond's price and yield to increase, all other factors constant.
B) It should cause the bond's price and yield to decrease, all other factors constant.
C) It should cause the bond's price to decrease and its yield to increase, all other factors constant.
D) None of the above.
6. Consider two bonds with the same rating and maturity: a tax exempt municipal with a 6% yield and a taxable corporate bond with a before-tax yield of 8%. Which of the following is true?
A) Bond buyers in a tax bracket of 20% will prefer the municipal bond.
B) Bond buyers in a tax bracket of 20% will prefer the corporate bond.
C) Bond buyers in a tax bracket of 25% will prefer the municipal bond.
D) Bond buyers in a tax bracket of 25% will prefer the corporate bond.
7. An investor exhibiting risk adverse behavior will
A) Sometimes accept a greater risk with a greater expected return.
B) Only invest in assets providing certain returns.
C) Never accept lower risk if it means accepting a lower expected return.