Consider three bonds with the same maturity and face value, and coupon rates of 3%, 4%, and 5%. If the interest rate increases by 1%, which bond price will decrease the most?

(a) That of the 4% coupon bond.

(b) That of the 3% coupon bond.

(c) That of the 5% coupon bond.

(d) Cannot tell

Questions

1. In capital budgeting, what constraint(s) should be added to guarantee that Project 1 cannot be selected unless Projects 2 and 3 are both selected, while keeping the problem tractable?

a. Add one constraint, x₁ x₂x₃

b. Add two constraints, x₁ x₂ and x₁ x₃

c. Add one constraint, x₁ x₂ + x₃

d. Add two constraints, x₁ x₂ and x₁ x₂ + x₃

1. In the benefit-cost ratio method in Example 5.1, the projects are sorted by

a. Nondcreasing ratio of the present value of benefits to the initial investment

b. Nonincreasing ratio of the present value of benefits to the initial investment

c. Nondcreasing NPV (present value of revenues initial cost)

d. Nonincreasing NPV (present value of revenues initial cost)

1. In the free cash flow approach, the growth rate is determined via

a. Linear programming

b. Nonlinear programming Z

c. Dynamic programming X

d. Integer programming

1. In a perpetual annuity, the periodic payment is

a. all interest

b. All covering the investment balance

c. Part interest, part covering the investment balance

d. Starts as all interest, and then revert to being all covering investment balance

1. In a market where coupons are payed semi-annually, when the yield increases from 5% to 6%, the price of zero-coupon bond with maturity 10 years will decrease by

a. 10%

b. More than 10%

c. Around 9.76%

d. 1%