12 Solved Problems on Financial Institutions and Markets - Quiz | FINA 4400, Quizzes of Financial Market

Download 12 Solved Problems on Financial Institutions and Markets - Quiz | FINA 4400 and more Quizzes Financial Market in PDF only on Docsity! FINA 4400 Additional Examples: Chapter 3 1. If interest rates increase, the value of a fixed income contract decreases and vice versa. TRUE 2. At equilibrium a security's required rate of return will be less than its expected rate of return. FALSE 3. The duration of a four year maturity 10% coupon bond is less than four years. TRUE 4. The longer the time to maturity the lower the security's price sensitivity to an interest rate change, ceteris paribus. FALSE 5. A zero coupon bond has a duration equal to its maturity and convexity equal to zero. TRUE 6. Duration is A. the elasticity of a security's value to small coupon changes. B. the weighted average time to maturity of the bond's cash flows C. the time until the investor recovers the price of the bond in today's dollars D. greater than maturity for deep discount bonds and less than maturity for premium bonds E. the second derivative of the bond price formula with respect to the ytm. 7. You would want to purchase a security if P _____ PV or Err _____ rrr. A. , B. , C. , D. , 8. An 8 year corporate bond pays has a 7% coupon rate. What should be the bond's price if the required return is 6% and the bond pays interest semiannually? A. $1062.81 B. $1062.10 C. $1053.45 D. $1052.99 E. $1049.49 Price = 35.00PVIFA(3%,16) + 1000PVIF(3%,16)