Consider two straight bonds, A and B. Both are currently trading at par and each has a coupon of 6.00% Bond A matures in twelve years and bond B matures in ten years. If the yield-to-maturity on both of these bonds increases by exactly 80 bps, then

A. Both bonds will decrease in value, but bond B will decrease more than bond A.

B. Both bonds will increase in value, but bond B will increase more than bond A

C. Both bonds will decrease in value, but bond A will decrease more than bond B

D. Both bonds will increase in value, but bond A will increase more than bond B

QUESTION 5

An investor purchases a CDS on a 5 year corporate bond that he holds in his portfolio. The CDS will pay out if there is a credit event and it is cash-settled. At the end of the third year the corporate bond issuer defaults and the CDS is triggered. There is a secondary market for this defaulted bond which is trading at 30% of its face value. What cash payment will be made at the settlement?

A. The investor will receive a payment of 70.00% of face value from the corporate bond issuer

B. The investor will receive a payment of 100,00% of face value from the CDS seller

C. The investor will receive a payment of 70.00% of face value from the CDS seller

D. The investor will make a payment of 70.00% of face value to the CDS seller

QUESTION 6

A bond will sell at a premium when

A. The coupon rate is less than the current yield and the current yield is less than the yield to maturity

B. The coupon rate is greater than the current yield and the current yield is less than the yield to maturity

C. The coupon rate is less than the current yield and the current yield is greater than the yield to maturity

D. The coupon rate is greater than the current yield and the current yield is greater than the yield to maturity