Which of the following statements is correct?

If a coupon bond is selling at a premium, then the current yield on the bond is zero.

If a coupon bond is selling at a discount, then the expected capital gains yield on the bond is negative.

If a bond is selling at a discount, the call yield is a better measure of the expected return than the yield to maturity.

The current yield on Bond A exceeds the current yield on Bond B. Therefore, Bond A must have a higher yield to maturity than Bond B.

If a coupon bond is selling at par, its current yield is equal to its yield to maturity.



QUESTION 12

Assume that the actual risk-free rate is 4.20%, the expected average future inflation rate is 6.50%, and a maturity risk premium of 0.10% per year to maturity is applied, that is, MRP = 0.10%(t) , where t are the years to maturity, so the pure expectancy theory is NOT valid. What rate of return would you expect on a 4-year Treasury? Ignore the cross product terms, that is, if an average is required, use the arithmetic average.



QUESTION 13

Which of the following statements is correct

10-year zero coupon bonds have more reinvestment rate risk than 10-year 10% coupon bonds.

A 10-year 10% coupon bond has less reinvestment rate risk than a 10-year 5% coupon bond (all else being equal).

The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in value of the bond from the beginning to the end of the year, divided by the price of the bond. bond. at the beginning of the year.

The price of a 20-year 10% bond is less sensitive to changes in interest rates than the price of a 5-year 10% bond.

A $1,000 bond with annual interest payments of $100 that has 5 years to maturity and is not expected to default would sell at a discount if interest rates were less than 9% and at a premium if interest rates were greater than 11%.




QUESTION 14

Which of the following statements is correct?

Even if the pure expectations theory is correct, there could sometimes be an inverted Treasury yield curve.

If the yield curve is inverted, short-term bonds have lower yields than long-term bonds.

The higher the maturity risk premium, the greater the probability that the yield curve will invert.

Inverted yield curves may exist for Treasuries, but because of default premiums, the corporate yield curve may not invert.

The most likely explanation for an inverted yield curve is that investors expect inflation to rise in the future.