Quiz 4

A  The yield on a 3-year Treasury bond cannot exceed the yield on a 10-year Treasury bond.

B  The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond.

C  The yield on a 10-year AAA-rated corporate bond should always exceed the yield on a 5-year AAA-rated corporate bond.

D  The yield on a 2-year corporate bond should always exceed the yield on a 2-year Treasury bond.

A  Under Chapter 7 of the Bankruptcy Act, the assets of a firm that declares bankruptcy must be liquidated.

B  All else equal, senior debt has more default risk than subordinated debt.

C  The expected return on a corporate bond must be greater than its promised return if the probability of default is greater than zero.

D  All else equal, secured debt is more risky than unsecured debt.

A  1.22%

B  1.10%

C  1.34%

D  0.86%

A  The yield on a 10-year bond would be less than that on a 1-year bill.

B  The yield on a 10-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium.

C  It is impossible to tell without knowing the relative risks of the two securities.

D  It is impossible to tell without knowing the coupon rates of the bonds.

A  7.38%

B  8.02%

C  8.66%

D  9.71%

A  If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat.

B  If the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping.

C  If the expectations theory holds, the Treasury bond yield curve will never be downward sloping.

D  If inflation is expected to increase in the future and the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping.

A  The bond’s current yield is above 9%.

B  The bond’s expected capital gains yield is zero.

C  If the bond’s yield to maturity declines, the bond will sell at a discount.

D  The bond’s yield to maturity is above 9%.

A  $1,235.47

B  $1,457.85

C  $1,050.15

D  $976.02

A  If the yield to maturity remains at 8%, then the bond’s price will decline over the next year.

B  The bond’s coupon rate is less than 8%.

C  If the yield to maturity increases, then the bond’s price will increase.

D  The bond’s current yield is less than 8%.

A  The Federal Reserve decides to try to stimulate the economy.

B  A new technology like the Internet has just been introduced, and it increases investment opportunities.

C  The economy falls into a recession.

D  Households reduce their consumption and increase their savings.