Domsel 2, 2013, bendey. Min T EJ001 Introduction to Financial Instruments and Markets 13. Suppose a bond's price is expected to increase by 5% if its market discount rate decreases by 100 basis points. If the bond's market discount rate increases by 100 basis points, the bond price is most likely to change by: a. 5%. b. Less than 5%. c. More than 5%. 14. Holding all other factors constant, the most likely effect of low demand and heavy new issue supply on bond yield spreads is that yield spreads will: a. Widen. b. Tighten C. Not be affected. 15. The one-year spot rate is 4%, the forward rate for a one-year loan beginning in one year is 6%, and the forward rate for a one-year loan beginning in two years is 8%. Which of the following is closest to the three-year spot rate? a. 4.0% b. 6.0% c. 8.0% 16. Given the yield curve for US Treasury zero-coupon bonds, which spread is most helpful in pricing a corporate bond? The: a. Z-spread. b. TED spread c. LIBOR-OIS spread. 17. An option-adjusted spread (OAS) on a callable bond is the Z-spread: a. Over the benchmark spot curve. b. Minus the standard swap rate in that currency of the same tenor. C. Minus the value of the embedded call option expressed in basis points per year. 18. The risk that a bond's creditworthiness declines is best described by: a. Credit migration risk. b. Market liquidity risk. c. Spread-widening risk. 19. Which of the following sources of return is most likely exposed to interest rate risk for an investor of a fixed-rate bond who holds the bond until maturity? a. Capital gain or loss. b. Redemption of principal. C. Reinvestment of coupon payments