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Devry FIN 351 Week 4 Quiz

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Devry FIN 351 Week 4 Quiz

Question 1
3 / 3 pts
(TCO 4) Which of the following types of bonds can perform well in improving economic conditions but face significant risks otherwise, due to the underlying quality or certainty of performance of the issuing company?

  • Municipal bonds
  • Floating-rate bonds
  • Junk bonds
  • Treasury bonds

Question 2
3 / 3 pts
(TCO 4) The demand side of the bond market is dominated by _____.

  • the federal government
  • wealthy individual investors
  • institutional investors
  • None of the above

Question 3
3 / 3 pts
(TCO 4) A provision in which semiannual or annual contributions are made by a corporation into a fund administered by a trustee for purposes of debt retirement is referred to as a _____.

  • call provision
  • put provision
  • sinking-fund provision
  • serial payment

Question 4
3 / 3 pts
(TCO 4) Assume a $1,000 treasury bill is quoted to pay 7% interest over a three-month period. What will be the price of the treasury bill?

  • $982.50
  • $980
  • $970
  • $980.50

Question 5
3 / 3 pts
(TCO 4) When should an investor calculate both yield to maturity and yield to call?

  • An investor should calculate both yield to maturity and yield to call whenever there is a call provision.
  • An investor should calculate both yield to maturity and yield to call when the sum of the present values of the interest payments exceeds the call price.
  • An investor should calculate both yield to maturity and yield to call when the market price is greater than or equal to the call price.
  • An investor should calculate both yield to maturity and yield to call whenever the funds can be reinvested.

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Question 6
3 / 3 pts
(TCO 4) The term structure of interest rates refers to _____.

  • the relationships between interest rates and term to maturity
  • the idea that any long-term rate is the average of expected future short-term rates
  • a general expectation of higher future interest rates
  • the idea that the terms of the bond may change as time to maturity changes

Question 7
3 / 3 pts
(TCO 4) The upward slope of the yield curve is caused by investors’ recognition of the relative difficulty of converting long-term securities to cash. This is the _____.

  • expectations hypothesis
  • liquidity preference theory
  • market segmentation theory
  • More than one of the above

Question 8
3 / 3 pts
(TCO 4) Duration is _____.

  • always longer than maturity
  • always the same as maturity
  • normally shorter than maturity
  • always shorter than maturity

Question 9
3 / 3 pts
(TCO 4) The highest duration and maximum price sensitivity relative to years to maturity are produced by _____.

  • a coupon rate equal to the market rate
  • a low coupon rate
  • a zero-coupon
  • None of the above

Question 10
3 / 3 pts
(TCO 4) The duration of a 20-year, $1,000 bond at a COUPON rate of 8% is _____ the duration of an identical bond at a coupon rate of 6%.

  • greater than
  • less than
  • equal to
  • There is not enough information to tell