What is discounting?

a. Reducing the value of future cash flows

b. The bank to bank lending rate

c. Calculating the future value of a cash flow

d. Adding inflation risk

The key difference between investment grade bonds and junk bonds are:

a. Length to maturity.

b. Default risk.

c. Prepayment risk.

d. Liquidity risk.

Which of the following statements is CORRECT?

a. The main difference between the yield to call and the yield to maturity calculations is that the dollar coupon payment differs on a callable bond than on a non-callable bond.

b. The yield to call is the return calculated on a bond that is held to maturity.

c. The yield to maturity is the return calculated on a bond that is held until it is called, which is a shorter period than the bond's original life.

d. There are 2 different ways to calculate a bond's return. The main difference is with the life-span of the bond. If an issuer can call its bonds early, the relevant return calculation is the yield to call. However, if an issuer cannot call its bonds, the relevant return calculation is the yield to maturity.