Which of the following statements is CORRECT?

a.

The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates.

b.

You hold two bonds. One is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline.

c.

The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.

d.

The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates.

e.

You hold two bonds. One is a 10-year, zero coupon, issue and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline.

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

	a.	Market interest rates rise sharply.
	b.	Market interest rates decline sharply.
	c.	The company's financial situation deteriorates significantly.
	d.	Inflation increases significantly.
	e.	The company's bonds are downgraded.

. Which of the following bonds has the greatest interest rate price risk?

	a.	A 10-year, $1,000 face value, zero coupon bond.
	b.	A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.
	c.	All 10-year bonds have the same price risk since they have the same maturity.
	d.	A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.

Which of the following statements is NOT CORRECT?

	a.	All else equal, bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities.
	b.	If a bond is selling at its par value, its current yield equals its yield to maturity.
	c.	If a bond is selling at a premium, its current yield will be greater than its yield to maturity.
	d.	All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons.
	e.	If a bond is selling at a discount to par, its current yield will be less than its yield to maturity.

Which of the following statements is CORRECT?

	a.	If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a premium above its $1,000 par value.
	b.	Other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
	c.	Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond.
	d.	Reinvestment rate risk is worse from an investor's standpoint than interest rate price risk if the investor has a short investment time horizon.
	e.	If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity, and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its $1,000 par value.