Quiz chapter 6 - Bond prices and interest rate risk Flashcards Preview

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Flashcards in Quiz chapter 6 - Bond prices and interest rate risk Deck (12):
1

1. The length of time until the final payment of a debt security is known as term to maturity.
a. True
b. False

T

2

2. Bond prices move inversely to interest rates. This means when interest rates go up, bond prices go
up and vice versa.
a. True
b. False

F

3

3. The price of a bond is the present value of future payments discounted at the coupon rate.
a. True
b. False

F

4

4. Most bonds the coupon rate, the par value and the term to maturity are fixed over the life of the
bond contract.
a. True
b. False

T

5

5. If market interest rates have increased since a bond was purchased, price risk will increase the price
of the bond and reinvestment risk will decrease the return on the coupons.
a. True
b. False

F

6

6. The yield on a bond varies with changes interest rates.
a. True
b. False

F

7

7. The higher the coupon rate, the lower the bond price volatility.
a. True
b. False

T

8

8. Short-term bonds have greater price risk compared to long-term bonds.
a. True
b. False

F

9

9. A bond sells at a discount when the market rate of interest is above the bond's fixed coupon rate.
a. True
b. False

T

10

10. Price risk is of no concern to the investor if the bond is held to maturity.
a. True
b. False

T

11

11. Whenever the market rate of interest is below a bond's coupon rate, a bond will sell at a discount.
a. True
b. False

F

12

12. The risk of interest rate changes causing the market price of a bond to rise or fall, resulting in gains
or losses for an investor is known as reinvestment risk.
a. True
b. False

F