2/12/2020 Quiz M4

My courses ▶ (20/01) MScFE 560 Financial Markets (C20-S1)

▶ Module 4: Fixed Income and Bond Markets ▶ Quiz M4

Started on Wednesday, 12 February 2020, 3:03 PM

State Finished
Completed on Wednesday, 12 February 2020, 3:30 PM
Time taken 27 mins 38 secs
Marks 15.00/15.00
Grade 20.00 out of 20.00 (100%)

Question 1

Correct

Mark 1.00 out of 1.00

Why are bond markets considered ef cient?

Select one:
Strict regulations ensure transparent and orderly trading behavior.
Fixed-income investments are low in risk, allowing investors to focus on
pro t and ef ciency.

Investors react quickly to new information about the probability of default of

bond-issuing entities. 
Credit rating agencies ensure up-to-date information on the default
probabilities of bond-issuing entities.

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Question 2

Correct

Mark 1.00 out of 1.00

Consider a government bond trading at an annual effective interest rate of 4.5%

and a corporate bond trading at an annual effective interest rate of 5.4%. 

What is the credit spread?

Select one:
None of the options listed are correct.
Approximately 0.9%, but the terms of the bonds must be accounted for to
determine an exact spread. 

Approximately 0.9%, but the terms and par values of the bonds must be
accounted for to determine an exact spread.
Exactly 0.9%

Question 3

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: The yield-to-maturity of a defaultable bond is the overall

return a lender will get with certainty by investing in the bond.
Statement B: A yield curve illustrates the term structure of interest rates.

Which of the statements given above is correct?

Select one:
Only statement A
Both statement A and B

Only statement B 
Neither statement A nor B

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Question 4

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: A at yield curve means that interest rates do not vary with
the maturities they are associated with.
Statement B: Increased coupon payments decrease the duration of a
coupon bond.

Which of the statements given above is correct?

Select one:
Only statement B
Both statement A and B 

Only statement A
Neither statement A nor B

Question 5

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: Bond coupon amounts can be calculated according to the

bond’s interest rate.
Statement B: The different between short-term and long-term interest rates
is known as the spread.

Which of the statements given above is correct?

Select one:
Only statement B
Both statement A and B
Neither statement A nor B  

Only statement A

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Question 6

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: If the default risk of an entity is perceived to change, all

defaultable bond prices in the market will change.
Statement B: The difference between a government bond price and a
corporate bond price is likely due to default risk.

Which of the statements given above is correct?

Select one:
Only statement B 

Neither statement A nor B

Only statement A
Both statement A and B

Question 7

Correct

Mark 1.00 out of 1.00

Why is credit risk considered asymmetric? 

Select one:
Only the lender is exposed to losses resulting from default. 

Only the borrower risks being unable to meet their obligations.

Both parties face equal but opposite risks.
Only the borrower has all the information about their actual
creditworthiness.

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Question 8

Correct

Mark 1.00 out of 1.00

How will one-year zero-coupon bond prices change if both the one-year and four-
year interest rates increase by 1%?

Select one:
One-year zero-coupon bond prices will decrease by the same amount as
four-year zero-coupon bond prices.
One-year zero-coupon bond prices will decrease by less than four-year zero-
coupon bond prices. 

It depends on whether there are other changes to the yield curve.

One-year zero-coupon bond prices will decrease by more than four-year
zero-coupon bond prices.

Question 9

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: The bond markets, where businesses raise capital, can also be
called the capital markets.
Statement B: It is risky for a business to be funded by less equity than debt.

Which of the statements given above is correct?

Select one:
Both statement A and B
Neither statement A nor B

Only statement A
Only statement B 

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Question 10

Correct

Mark 1.00 out of 1.00

What is the recovery of a bond?

Select one:
A new issuance of a bond after it has been traded on the secondary market
The discount an investor gets to compensate them for facing credit risk
The fraction of par value that the bond holder gets in the event of default 
The fee an investor must pay to purchase a bond after primary trades are
exhausted

Question 11

Correct

Mark 1.00 out of 1.00

AAA incorporation. has issued 30-year semiannual coupon bonds with a face
value of $1,000. If the annual coupon rate is 14% and the current yield to maturity
is 15%, what is the rm's current price per bond?

Select one:
$231.38
$934.20 
This question cannot be answered because the coupon payment
information is missing.
$239.39

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Question 12

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: If there are no perceived changes to an entity’s default risk, its

bond prices can still change suddenly.
Statement B: Tax is a factor that causes xed future payments to be risky.

Which of the statements given above is correct?

Select one:
Only statement B
Only statement A 
Neither statement A nor B
Both statement A and B

Question 13

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: A bond’s maturity date is, by de nition, more than a year away
from its issuing date.
Statement B: Interest-rate risk is the risk that a bond’s principal changes.

Which of the statements given above is correct?

Select one:
Both statement A and B
Neither statement A nor B

Only statement A 
Only statement B

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Question 14

Correct

Mark 1.00 out of 1.00

Consider the following statements:

Statement A: New information about an entity’s default probability is

incorporated into its bond prices rapidly.
Statement B: Par values of defaultable bonds are discounted more than par
values of non-defaultable bonds.

Which of the statements given above is correct?

Select one:
Both statement A and B 

Only statement B
Neither statement A nor B
Only statement A

Question 15

Correct

Mark 1.00 out of 1.00

What is an alternative name for bond markets, and how does it relate to its
de nition and characteristics?

Select one:
Bond markets are also called the xed-income markets, because bonds are
low risk investments that essentially x the amount of pro t earned each
period.
Bond markets are also called the capital markets, because investors can
invest by lending their capital.

Bond markets are also called the capital markets, because they are where
business raise capital for their business.
Bond markets are also called the xed-income markets, because the traded
instruments have speci ed promised payments. 

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