Objective type questions on bond valuation and us treasury

Reference no: EM1314819

Objective type questions on bond valuation and US Treasury bills

1. Moussawi Ltd's outstanding bonds have a $1,000 par value, and they mature in 5 years. Their yield to maturity is 9%, based on semiannual compounding, and the current market price is $853.61. The bonds have a par value of $1,000. What is the bond's annual coupon interest rate?

a. 5.10%

b. 5.20%

c. 5.30%

d. 5.40%

e. 5.50%

2. Which of the following statements is NOT CORRECT?

a. If a bond is selling at its par value, its current yield equals its yield to maturity.

b. If a bond is selling at a discount to par, its current yield will be less than its yield to maturity.

c. All else equal, bonds with longer maturities have more interest rate (price) risk than do bonds with shorter maturities.

d. All else equal, bonds with larger coupons have greater interest rate (price) risk than do bonds with smaller coupons.

e. If a bond is selling at a premium, its current yield will be greater than its yield to maturity.

3. Over the past 75 years, we have observed that investments with the highest average annual returns also tend to have the highest standard deviations of their annual returns. This observation supports the notion that there is a positive correlation between risk and return. Which of the following lists correctly ranks investments from highest to lowest returns and risk (thus, the highest risk security should be shown first, the lowest risk securities shown last)?

a. small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills

b. small-company stocks, long-term corporate bonds, large-company stocks, long-term government bonds, U.S. Treasury bills

c. large-company stocks, small-company stocks, long-term corporate bonds, U.S. Treasury bills, Long-term government bonds

d. U.S. Treasury bills, long-term government bonds, long-term corporate bonds, small-company stocks, large-company stocks

e. large-company stocks, small-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills

Reference no: EM1314819

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