The following multiple-choice problems are based on questions that appeared in past CFA examinations.
a. A bond with a call feature:
(1) Is attractive because the immediate receipt of principal plus premium produces a high return.
(2) Is more apt to be called when interest rates are high because the interest saving will be greater.
(3) Will usually have a higher yield to maturity than a similar non-callable bond.
(4) None of the above.
b. In which one of the following cases is the bond selling at a discount?
(1) Coupon rate is greater than current yield, which is greater than yield to maturity.
(2) Coupon rate, current yield, and yield to maturity are all the same.
(3) Coupon rate is less than current yield, which is less than yield to maturity.
(4) Coupon rate is less than current yield, which is greater than yield to maturity.
c. Consider a five-year bond with a 10% coupon selling at a yield to maturity of 8%. If interest rates remain constant, one year from now the price of this bond will be:
(1) Higher
(2) Lower
(3) The same
(4) Par
d. Which of the following statements is true?
(1) The expectations hypothesis indicates a flat yield curve if anticipated future short-term rates exceed current short-term rates.
(2) The basic conclusion of the expectations hypothesis is that the long-term rate is equal to the anticipated short-term rate.
(3) The liquidity hypothesis indicates that, all other things being equal, longer maturities will have higher yields.
(4) The liquidity preference theory states that a rising yield curve necessarily implies that the market anticipates increases in interest rates.