Reference no: EM133641460
True or False
1. The holding period return on a municipal bond investment is fully free of the federal income tax.
2. A rate-capped floating-rate bond is priced lower than an otherwise-identical rate-floored floating-rate bond.
3. If future interest rate volatility is zero, all future spot rates are known with certainty.
4. When a "hot" (sought after) bond is used as collateral, bond dealers are willing to offer to lend funds at a lower repo rate than the average repo rate in the market.
5. A smaller yield change of a $10,000 price change implies a lower interest rate risk in a bond portfolio compared to a bigger yield change of a $10,000 price change in a benchmark bond portfolio.
6. There are three otherwise-identical bonds: a callable bond, a putable bond, and a straight bond. The callable bond has the highest nominal spread and the highest z-spread among the three bonds.
7. An option-free bond has a duration of 7.3, which means that the bond has a weighted average life of 7.3 years.
8. The Z-spread of a corporate bond can be negative.
9. The duration of a bond portfolio is the weighted average of durations of the bonds in the portfolio, just like the yield of a bond portfolio is the weighted average of yields of bonds in the portfolio.
10. An A-rated bond has less interest rate risk than a B-rated bond.
11. On-the-run bonds have lower yields than otherwise identical off-the-run bonds.
12. In an efficient market, a firm has two bond issues outstanding. One is a callable bond and the other is an otherwise identical putable bond. The OAS of the putable bond is equal to the OAS of the callable bond.