Question 1 Bond L: 2-year zero coupon bond, pays $200 at maturity

Bond M: 1-year zero coupon bond, pays $10 at maturity

Bond N: 2-year zero coupon bond, pays $10 at maturity

Bond O: 2-year, 5% coupon (paid annually) bond, face value = $200

Suppose you combine Bonds L, M, and N to produce a Portfolio LMN, and that the Yield to Maturity is the same for all three bonds and the portfolio considered. Which of the following is true?

A. Price of LMN > Price of O

B. Price of LMN = Price of O

C. Price of LMN < Price of O

D. Cannot determine if one price is greater than another without further information

Question 2

Noting that the price obtained in the previous question is an approximation, which of the following will be true for the actual (not approximated) price at the new yield?

A) Actual Price < Approximated Price

B) Actual Price > Approximated Price

C) Actual Price = Approximated Price

D) Actual Price can be greater or less than Approximated Price, depending on other factors.

Question 3

Yesterday the yield to maturity (YTM) fell by 150 basis points and the price of my bond increased by exactly 3%. If YTM falls today again by 150 basis points, then the price of my bond will

A. Remain constant

B. Fall by 3%

C. Fall by > 3%

D. Fall by < 3%

E. Increase by 3%

F. Increase by > 3%