CAPITOLO 8

A visually appealing illustration representing bonds and financial investment, featuring symbols of TIPS, zero-coupon bonds, and rising interest rates, with a background of financial charts and graphs.

Bond Investment Quiz

Test your knowledge on bond investments and related financial concepts with this engaging quiz! Dive into questions about TIPS, zero-coupon bonds, duration, and more.

Whether you're a finance student or a professional looking to refresh your skills, this quiz covers:

Coupon calculations
Interest rate risks
Yield spreads

14 Questions4 MinutesCreated by InvestingEagle725

You buy a TIPS at issue at par for $1,000. The bond has a 3.7% coupon. Inflation turns out to be 2.7%, 3.7%, and 4.7% over the next 3 years. The total annual coupon income you will receive in year 3 is _________.

$ 41,26

$ 37,00

$ 38,37

$ 40,70

Assuming semiannual compounding, a 15-year zero coupon bond with a par value of $1,000 and a required return of 14.0% would be priced at _________.

$ 877,19

$ 934,58

$ 131,37

$ 140,10

A bond swap made in response to forecasts of interest rate changes is called ______.

An intermarket spread swap

A substitution swap

A pure yield pickup swap

A rate anticipation swap

Consider the following $1,000 par value zero-coupon bonds

The expected 1-year interest rate 2 years from now should be _________.

BOND	YEARS TO MATURITY	YIELD TO MATURITY
A	1	6,20%
B	2	7,70%
C	3	8,20%
D	4	8,70%
E	5	10,75%

19,34%

19,28%

9,21%

11,76%

All other things equal (YTM = 10%), which of the following has the shortest duration?

A 20-year bond with a 9% coupon

A 10-year zero-coupon bond

A 20-year bond with a 7% coupon

A 30-year bond with a 10% coupon

You buy a 8-year $1,000 par value 4.20% annual-payment coupon bond priced to yield 6.20%. You do not sell the bond at year-end. If you are in a 15% tax bracket, at year-end you will owe taxes on this investment equal to _______.

$ 6,30

$ 4,45

$ 8,15

$ 9,30

You buy a bond with a $1,000 par value today for a price of $830. The bond has 7 years to maturity and makes annual coupon payments of $66 per year. You hold the bond to maturity, but you do not reinvest any of your coupons. What was your effective EAR over the holding period?

8,42%

10,10%

10,57%

7,33%

A bank has an average duration of its liabilities equal to 2 years. The bank's average duration of its assets is 3.5 years. The bank's market value of equity is at risk if _______________________.

Interest rates fall

Credit spreads fall

Interest rates rise

The price of all fixed-income securities rises

A pension fund must pay out $1 million next year, $2 million the following year, and then $3 million the year after that. If the discount rate is 8%, what is the duration of this set of payments?

2 years

2.15 years

2.29 years

2.53 years

The historical yield spread between the AA bond and the AAA bond has been 25 basis points. Currently the spread is only 9 basis points. If you believe the spread will soon return to its historical levels, you should ________________________.

Buy the AAA and short the AA

Buy both the AA and the AAA

Short both the AA and the AAA

Buy the AA and short the AAA

You buy a 8-year $1,000 par value 4.50% annual-payment coupon bond priced to yield 6.50%. You do not sell the bond at year-end. If you are in a 15% tax bracket, at year-end you will owe taxes on this investment equal to _______.

$ 4,94

$ 6,75

$ 9,75

$ 8,56

You buy a bond with a $1,000 par value today for a price of $840. The bond has 5 years to maturity and makes annual coupon payments of $68 per year. You hold the bond to maturity, but you do not reinvest any of your coupons. What was your effective EAR over the holding period?

12,08%

8,09%

11,14%

9,79%

You buy a TIPS at issue at par for $1,000. The bond has a 4.9% coupon. Inflation turns out to be 3.9%, 4.9%, and 5.9% over the next 3 years. The total annual coupon income you will receive in year 3 is _________.

$ 49,00

$ 56,56

$ 51,40

$ 53,90

Assuming semiannual compounding, a 10-year zero coupon bond with a par value of $1,000 and a required return of 12.4% would be priced at _________.

$ 889,68

$ 300,27

$ 941,62

$ 310,70

CAPITOLO 8

Bond Investment Quiz

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