1.

Which bond's price would be the most sensitive to an unexpected change in the interest rate?

A zero coupon bond with 10 years to maturity.

A bond with a 5% coupon rate and 10 years to maturity.

A bond with a 10% coupon rate and 10 years to maturity.

A zero coupon bond with 15 years to maturity

2.The R&M Bank has offered you the choice between two investment accounts:

#1 pays interest at a rate of 12% compounded semi-annually

#2 pays interest at a rate of 11% compounded monthly

Which investment account do you prefer and why?

#1, highest effective rate

#2, highest effective rate

#2, greater compounding frequency

#1, 12% is greater than 11%

3.

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity. This bond was originally issued at par with a $1,000 face value.

The coupon rate on the bond is 8%. Today, the yield-to-maturity (YTM) is 10%.

Assume an investor bought the bond at the time it was issued and sold it today.What is the holding period returnfor the five year period of investment?

0.3389

0.3838

0.3654

0.3422