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The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity. True False Assume

The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity.

True

False

Assume that interest rates on 20-year Treasury and corporate bonds are as follows:

T-bond = 7.72% AAA = 8.72% A = 9.64% BBB = 10.18% The differences in these rates were probably caused primarily by:

a.

Real risk-free rate differences.

b.

Tax effects.

c.

Maturity risk differences.

d.

Inflation differences.

e.

Default and liquidity risk differences.

The "yield curve" shows the relationship between bonds' maturities and their yields.

True

False

An upward-sloping yield curve is often call a "normal" yield curve, while a downward-sloping yield curve is called "abnormal."

True

False

A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if market interest rates are below 10% and at a discount if interest rates are greater than 10%.

True

False

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