Objectve questions on bond valuation


Question1. Suppose that all interest rates in the economy decline from 10 percent to 9 percent. Determine the largest percentage increase in price?

[A] A 10-year bond with a 10% coupon.

[B] A 10-year zero coupon bond.

[C] An 8-year bond with a 9% coupon.

[D] A 1-year bond with a 15% coupon.

[E] A 3-year bond with a 10% coupon.

Question2. Determine the greatest interest rate price risk?

[A] A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.

[B] A 10-year $100 annuity.

[C] A 10-year, $1,000 face value, zero coupon bond.

[D] A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.

[E] All 10-year bonds have the same price risk since they have the same maturity.

Question3. Find the correct statements?

[A] Risk refers to the chance that some unfavorable event will occur, and a probability distribution is completely described by a listing of the likelihood of unfavorable events.

[B] A stock with a beta of -1.0 has zero market risk if held in a 1-stock portfolio.

[C] The SML relates its required return to a firm's market risk. The slope and intercept of this line cannot be controlled by the financial manager.

[D] Portfolio diversification reduces the variability of returns on an individual stock.

[E] When company-specific risk has been diversified away, the inherent risk that remains is market risk, which is constant for all stocks in the market.

Request for Solution File

Ask an Expert for Answer!!
Finance Basics: Objectve questions on bond valuation
Reference No:- TGS016772

Expected delivery within 24 Hours