Question Details

One advantage of a zero coupon Treasury bond 



1.	Which of the following statements is CORRECT?
a.	All else equal, high-coupon bonds have less reinvestment rate risk than low-coupon bonds.
b.	All else equal, long-term bonds have less interest rate price risk than short-term bonds.
c.	All else equal, low-coupon bonds have less interest rate price risk than high-coupon bonds.
d.	All else equal, short-term bonds have less reinvestment rate risk than long-term bonds.
e.	All else equal, long-term bonds have less reinvestment rate risk than short-term bonds.
	
2.	Which of the following statements is CORRECT?

a.	One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.
b.	Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds.
c.	If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk.
d.	Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk.
e.	Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.
	
3.	Which of the following statements is CORRECT?

a.	If the maturity risk premium were zero and interest rates were expected to decrease in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope.
b.	Liquidity premiums are generally higher on Treasury than corporate bonds.
c.	The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds.
d.	Default risk premiums are generally lower on corporate than on Treasury bonds.
e.	Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.
	
4.	Which of the following statements is CORRECT?

a.	All else equal, senior debt generally has a lower yield to maturity than subordinated debt.
b.	An indenture is a bond that is less risky than a mortgage bond.
c.	The expected return on a corporate bond will generally exceed the bond's yield to maturity.
d.	If a bond- coupon rate exceeds its yield to maturity, then its expected return to investors will also exceed its yield to maturity.
e.	Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated.
	
5.	Which of the following statements is CORRECT?

a.	If a coupon bond is selling at par, its current yield equals its yield to maturity.
b.	If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.
c.	If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond.
d.	If a bond- yield to maturity exceeds its annual coupon, then the bond will trade at a premium.
e.	If a coupon bond is selling at a premium, its current yield equals its yield to maturity.




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