What is reinvestment risk of bond

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Reference no: EM132046197

1. What is price risk/interest rate risk of a bond?

A. The risk of a decline in a bond’s price due to an decrease in interest rate

B. The risk of an increase in a bond’s price due to an decrease in interest rate

C. The risk of a decline in a bond’s price due to an increase in interest rate

D. The risk of an increase in a bond’s price due to an increase in interest rate

E. None of the above

2. What is reinvestment risk of a bond?

A. The risk that an increase in interest rates will lead to a decline in income from a bond portfolio.

B. The risk that a decline in interest rates will lead to a decline in income from a bond portfolio.

C. The risk that a decline in interest rates will lead to an increase in income from a bond portfolio.

D. The risk that an increase in interest rates will lead to an increase in income from a bond portfolio

E. None of the above.

3. A Treasury bond has an 8% annual coupon and a 10% yield to maturity. Which of the following statements is CORRECT?

A. The bond sells at a premium.

B. The bond sells at a discount.

C. If the yield to maturity remains constant, the price of the bond will decline over time.

D. None of the above

4. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is CORRECT?

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

B. The bond’s current yield is less than its expected capital gains yield.

C. Market Interest rate on the bond is 9%.

D. Can not be determined from the information given.

5. What is the relationship between yield to maturity, current yield and capital gains yield?

A. Yield to maturity=current yield - capital gains yield

B. Yield to maturity= capital gains yield - current yield

C. Yield to maturity=current yield + capital gains yield

D. Yield to maturity= capital gains yield E. None of the above.

6. What is the value of a 10-year, 15% annual coupon bond, if rd = 15%?

A. 1000

B. 1057

C. 1034

D. 998

E. 987

7. What is the value of a 10-year, 10% semiannual coupon bond, if rd = 16%?

A. 705

B. 834

C. 872

D. 791

E. 988

Reference no: EM132046197

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