Coupon reinvestment risk increases with
Answer the following questions. Please number your answers and put your
name on your paper.
This project is due Thursday December 17th, 2015. Please place it in the week
16 dropbox.
1. Coupon reinvestment risk increases with
a. Lower coupon/shorter reinvestment period
b. Higher coupon/longer reinvestment period
c. Coupon and reinvestment period have no impact
2. If interest rates rise the price of a bond will
a. Rise
b. Stay the same
C- Decline
3. If interest rates rise, the value of reinvested coupons
a. Rise
b. Stay the same
c. Decline
4. Bond capital gains are measured trom
a. Purchase price
b. Carrying value
c. Coupon rate
d. Sale price
5. MacAulay duration measures
a. Estimated linear change in price for a change in yield to maturity
b. Estimated linear change in price for a change in benchmark yield
c. Weighted average of time to receipt of coupon interest payments
a. Estimated linear change in price for a change in yield to maturity
b. Estimated linear change in price for a change in benchmark yield
c. Weighted average of time to receipt of coupon interest payments
7. Modified duration measures
a. Estimated linear change in price for a change in yield to maturity
b. Estimated linear change in price for a change in benchmark yield
c. Weighted average of time to receipt of coupon interest payments
8. The point where reinvested coupons offsets the drop in the price of a
bond in a rising rate
environment is also known as
a. MacAulay duration
b. Effective Duration
c. Modified Duration
9. Line A represents
a. Effective duration
b. Modified duration
c. MacAulay duration
d. Convexity
e. Bond price
10. Curve B represents
a. Effective duration
b. Modified duration
c. MacAulay duration
d Convexity
e. Bond price
11. Area C represents
a. Effective duration
b. Modified duration
c. MacAulay duration
d. Convexity
e. Bond price
12. True or False modified duration and effective duration are always the same?
a. True
b. False
13- When interest rates arc low, callable bonds have
a. Positive convexity
b. No convexity
c. Negative convexity
14. Coupon reinvestment risk dominates price risk when
a. Investment horizon > MacAulay Duration
b. Investment horizon < MacAulay Duration
c. Investment horizon ? MacAulay Duration
a. Credit Risk
b. Market price risk
c. Coupon reinvestment risk
16. Sharp* CAPM says
a. More risk equals more return
b. More return equals more risk
c. More risk does not equal more return
d. All of the above
e. b and c
a. Spread risk
b. Default risk
c. Downgrade risk
d. Loss severity
18. Place the following in order of claims seniority
a. First lien
b. Junior subordinated
c. Senior secured
d. Subordinated
e. Senior subordinated
f. Senior unsecured
19. Which is NOT one of the 4 C's of credit analysis
a. Capacity
b. Collection
c. Collateral
d. Covenants
e. Character
20. All creditors at the same level of the capital structure being treated the same is known as?
21. A credit analyst is looking at three different companies - an auto
company, a drug company and
a mining company. The auto and mining companies are cyclical. The drug company
is non-
cyclical. The least credit risk is likely in the
a. Auto company
b. Drug company
c. Mining company
22. Same companies in #21. The auto company has a debt/ebitda ratio of
6.0, the mining company
has a debt/ebitda of 2.0 and the drug company has a debt/ebitda ratio of 1.0.
Which company
likely carries the most credit risk?
a. Auto company
b. Drug company
23. At the bottom of an economic cycle the loss severity on a credit default is likely to be
a. Lower
b. Higher
c. Unchanged
24. At default at a company that is in a mature/declining Industry is likely to experience severity that
is
a. Lower
b. Higher
c. Unchanged
25. Market price risk dominates coupon reinvestment when the investor
has a
relative to the time to maturity on the bond
a. Long term horizon
b. Short term horizon
c. Horizon doesn't matter
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Rating:
/5
Solution: Coupon reinvestment risk increases with