Question 1

In the Fisher equation, risk premiums are embedded in the expected inflation rate.

Accepted Answer

A) True 
 B)False

Question 2

Demonstrate the relationship between price risk and time to maturity by calculating the change in the price of a 5% coupon Treasury bond if rates increase from 5% to 6% and the bond has 
(i)one year to maturity, (ii)five years to maturity and (iii)10 years to maturity.

Accepted Answer

Initially the bond is a par bond (P = $1...

Question 3

The ratings provided by ratings agencies are NOT:

Accepted Answer

A)  a trading recommendation
B)  useful to investors in bond securities
C)  reflected in the market yield for securities
D)  based on a qualitative and quantitative analysis of the issuer
E)  reviewed after the securities are first issued.F) C) and D)
G) A) and C)

Question 4

Treasury bonds:

Accepted Answer

A)  trade 'ex-interest' between the 9th and 15th of each month
B)  are priced using a semi-annual compound rate
C)  pay interest once or twice a year
D)  are mostly traded on an 'ex-interest' basis.
E)  All of these.F) A) and B)
G) A) and C)

Question 5

Say you purchased a 5% Treasury bond at par and sold it exactly two years later when yields were 4% per annum.If coupons were reinvested at 5% per annum, your holding period yield would be:

Accepted Answer

A)  less than or equal to 4% p.a.
B)  between 4% and 5% p.a.
C)  exactly 5% p.a.
D)  more than 5% p.a.
E)  Cannot be calculated with the information provided.F) A) and B)
G) A) and D)

Question 6

Treasury bonds trade cum-interest for how many weeks of the year?

Accepted Answer

A)  52
B)  50
C)  48
D)  4
E)  2F) A) and C)
G) C) and D)

Question 7

Describe the issuers of non-government bonds.

Accepted Answer

The largest issuer is financial institut...

Question 8

Specify the sources of the returns for a bond investor.

Accepted Answer

Given the investor has purchased the bon...

Question 9

Demonstrate when a bond will trade at a discount, at par and at a premium using an 8% Treasury bond with five years to maturity.

Accepted Answer

The bond will trade at a discount if the...

Question 10

Prior to the mid-1990s, the issue of non-government bonds was very low in Australia.

Accepted Answer

A) True 
 B)False

Question 11

A bond that is secured and issued to retail investors is a:

Accepted Answer

A)  Treasury bond
B)  semi-government bond
C)  convertible bond
D)  debenture
E)  floating-rate note.F) A) and E)
G) C) and D)

Question 12

Of the following, which is NOT a standard bond feature?

Accepted Answer

A)  Floating-interest rate coupons.
B)  Half-yearly coupons.
C)  Redeemed by the payment of face value.
D)  Face value payable at the maturity date.
E)  All of these are standard bond features.F) B) and C)
G) C) and E)

Question 13

Mortgage-backed securities are mainly 25-year fixed-rate bonds.

Accepted Answer

A) True 
 B)False

Question 14

The cost of credit ratings is borne by investors who want access to the ratings information.

Accepted Answer

A) True 
 B)False

Question 15

Explain the role of ratings agencies in the bond market and identify the moral hazard that they face.

Accepted Answer

Ratings agencies assign credit ratings t...

Question 16

Trading in Treasury bonds reveals the interest rate that applies on long-term loans.

Accepted Answer

A) True 
 B)False

Question 17

Investors in the bond market face the issuer's credit risk and the securities' market risk.

Accepted Answer

A) True 
 B)False

Question 18

What is a 'tranche'?

Accepted Answer

A tranche refers to a specific segment o...

Question 19

A Treasury bond was bought and sold for $102.200 and $101.050 respectively.The accumulated value of all coupons was $18.If the bond was held for exactly four years and the bond paid coupons semi-annually, then the realised yield-to-maturity on this bond was:

Accepted Answer

A)  4% p.a
B)  3.85% p.a
C)  3% p.a
D)  2.55% p.a
E)  2% p.aF) None of the above
G) A) and B)

Question 20

Bonds are traded over-the-counter by dealers who provide bid-offer prices.

Accepted Answer

A) True 
 B)False

Exam 8: The Bond Market

A Treasury bond was bought and sold for $102.200 and $101.050 respectively.The accumulated value of all coupons was $18.If the bond was held for exactly four years and the bond paid coupons semi-annually, then the realised yield-to-maturity on this bond was:

Correct AnswerverifiedShow Answer

Describe the issuers of non-government bonds.

Correct AnswerverifiedThe largest issuer is financial institut...View AnswerShow Answer

Investors in the bond market face the issuer's credit risk and the securities' market risk.

Correct AnswerverifiedShow Answer

Specify the sources of the returns for a bond investor.

Correct AnswerverifiedGiven the investor has purchased the bon...View AnswerShow Answer

A bond that is secured and issued to retail investors is a:

Correct AnswerverifiedShow Answer

Bonds are traded over-the-counter by dealers who provide bid-offer prices.

Correct AnswerverifiedShow Answer

Prior to the mid-1990s, the issue of non-government bonds was very low in Australia.

Correct AnswerverifiedShow Answer

The cost of credit ratings is borne by investors who want access to the ratings information.

Correct AnswerverifiedShow Answer

Trading in Treasury bonds reveals the interest rate that applies on long-term loans.

Correct AnswerverifiedShow Answer

Treasury bonds trade cum-interest for how many weeks of the year?

Correct AnswerverifiedShow Answer

What is a 'tranche'?

Correct AnswerverifiedA tranche refers to a specific segment o...View AnswerShow Answer

Mortgage-backed securities are mainly 25-year fixed-rate bonds.

Correct AnswerverifiedShow Answer

In the Fisher equation, risk premiums are embedded in the expected inflation rate.

Correct AnswerverifiedShow Answer

Say you purchased a 5% Treasury bond at par and sold it exactly two years later when yields were 4% per annum.If coupons were reinvested at 5% per annum, your holding period yield would be:

Correct AnswerverifiedShow Answer

Explain the role of ratings agencies in the bond market and identify the moral hazard that they face.

Correct AnswerverifiedRatings agencies assign credit ratings t...View AnswerShow Answer

Of the following, which is NOT a standard bond feature?

Correct AnswerverifiedShow Answer

Demonstrate when a bond will trade at a discount, at par and at a premium using an 8% Treasury bond with five years to maturity.

Correct AnswerverifiedThe bond will trade at a discount if the...View AnswerShow Answer

Demonstrate the relationship between price risk and time to maturity by calculating the change in the price of a 5% coupon Treasury bond if rates increase from 5% to 6% and the bond has (i)one year to maturity, (ii)five years to maturity and (iii)10 years to maturity.

Correct AnswerverifiedInitially the bond is a par bond (P = $1...View AnswerShow Answer

Treasury bonds:

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The ratings provided by ratings agencies are NOT:

Correct AnswerverifiedShow Answer

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The largest issuer is financial institut...
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Given the investor has purchased the bon...
View Answer

Correct Answer
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A tranche refers to a specific segment o...
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Correct Answer
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Correct Answer
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Correct Answer
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Ratings agencies assign credit ratings t...
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Correct Answer
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Correct Answer
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The bond will trade at a discount if the...
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Correct Answer
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Initially the bond is a par bond (P = $1...
View Answer

Correct Answer
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Correct Answer
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