#1
Which of the following factors affects the market value of a bond?
All of the above
ExplanationVarious factors including interest rates, credit ratings, and economic conditions influence the market value of bonds.
#2
How does an increase in interest rates affect bond prices?
Bond prices decrease
ExplanationRising interest rates lead to a decrease in bond prices, inversely impacting their value.
#3
What is the relationship between bond prices and interest rates?
Inverse
ExplanationBond prices and interest rates have an inverse relationship; as one goes up, the other tends to go down.
#4
What is the formula for calculating the present value of a bond?
PV = C / (1 + r)^n
ExplanationPresent value is computed using the coupon payment divided by (1 + interest rate) raised to the power of the number of periods.
#5
Which of the following bonds is considered riskier?
A bond with a longer maturity
ExplanationLonger maturity bonds are generally riskier due to their exposure to interest rate fluctuations over an extended period.
#6
What does a bond's yield to maturity represent?
The annual interest payments plus any capital gains divided by the current market price
ExplanationYTM encompasses annual interest payments and potential capital gains or losses, relative to the current market price.
#7
What does a negative yield to maturity indicate for a bond?
The bond is overvalued
ExplanationA negative YTM suggests the bond's market price is higher than its face value, indicating overvaluation.
#8
Which factor primarily determines the price volatility of a bond?
Yield to maturity
ExplanationYield to maturity is a primary determinant of bond price volatility, impacting how much prices fluctuate in response to interest rate changes.
#9
What is the primary determinant of a bond's coupon rate?
Yield to maturity
ExplanationYield to maturity influences the coupon rate, as it affects the issuer's cost of borrowing and the bond's attractiveness to investors.