Consider two fixed coupon bonds with the same maturity 10Y and same face value F = 100. Bond 1 pays yearly coupons with coupon rate C₁ = 5% and bond 2 has coupon rate C₂ = 7%. Which of the two bonds has a larger duration? (a) Bond 1. (b) Bond 2. Consider two exchange rates X/Y and Z/Y. (For example EUR/USD and JPY/USD.) They both follow perfectly correlated geometric Brownian motions with parameters (μ₁,01) and (µ₂,0₂). Does the cross-exchange rate X/Z (for example EUR/JPY) also follows a geometric Brownian motion? (a) Yes (b) No

Two bonds, bond A and bond B, are identical except that bond A is convertible and bond B is not. Which bond will have the higher price? Why

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Which of the following statements is/are most CORRECT? O 11 A yield curve depicts the relationship between bond's 'time to maturity and its yield to maturity. 2) A premium bond's price will decline over time if the required return remains unchanged. 3) A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.

a) All things being equal If a bond's coupon rate is higher than its yieldto maturity (YTM), is the bond selling at a discount, premium or par?b) All things being equal If a bond's coupon rate is lower than its yield tomaturity (YTM), is the bond selling at a discount, premium or par?c) All things being equal If a bond's coupon rate is equal to its yield tomaturity (YTM), then is the bond selling at a discount, premium or par?d) All else being equal, the longer the term to maturity, the greater orthe lower the duration?f) All else being equal, the higher the coupon rate on the bond, theshorter or the longer the duration of the bond?

All else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments on floating rate bonds will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be greater than for low coupon bonds Select one: O a. I, III, and IV only O b.ll and IV only Ocland Il only O d. Ill and IV only O e.1, 1l and Ill only

A dual-currency bond makes coupon interest payments in one currency and the principal repayment at maturity in another currency.   Select one: True False

Consider two pairs of bonds; A and B, and C and D. A and B are both coupon bonds, they have the same coupon rate, but A has a longer time-to-maturity than B, and at the prevailing rate they sell at the same price. C is a coupon bond and D is a zero coupon bond, they both have the same time-to-maturity, and at the prevailing rate they sell at the same price. If interest rates rise by the same amount for all of the bonds, which bond in each pair will fall by the greater amount in price? A and D OB and C O If bonds are priced in an efficient market, their price is not altered by transitory events. OB and D OA and C 4

Under what situation might a bond discount arise when issuing bonds? Select one: a. The coupon rate is less than the effective or yield rate. b. The effective or yield rate is less than the coupon rate. c. The coupon rate is less than the cash rate of interest. d. The effective or yield rate is less than the market rate of interest.

Which of the following statements is correct assuming same market rates for all maturities (flat yield curve)? e a Extendible bonds allow bond issuer to extend the maturity date. O b. Callable bonds give the bond issuer an option to call the bond back before the maturity date at a predetermined price. Oc. When the market yield is equal to a bond's stated coupon rate, the bond's current yield is greater than its coupon yield. Od. The cash price plus the accrued interest on the bond is the quoted price of the bond. Current yield is the ratio of annual coupon payment divided by the par value. o e.