Reading 63: Risks Associated with Investing in Bonds - LO

答案和详解如下：

1.Jonathon Silver, CFA, has a client, Alyce Grossberg, whose only current investment requirement is that she wants to buy a premium bond. The required market yield is currently 7.25 percent at all maturities. Which of the following $1,000 face value bonds should Silver select for Grossberg’s portfolio? A

A)   15-year, zero-coupon bond priced to yield 9.00%.

B)   10-year, 8.00% semi-annual coupon bond.

C)   5-year, 7.25% annual coupon bond.

D)   10-year, 7.00% semi-annual coupon bond.

The correct answer was B)

A bond sells at a premium when the coupon rate is greater than the required market yield. Here, the 10-year, 8.00% semi-annual coupon bond would sell above par, or at a premium.

The 15-year, zero-coupon bond priced to yield 9.00% would sell at a discount. Zero-coupon bonds sell at a discount from par, because they pay no coupon. (Coupon rate = 0.00%.) The 10-year, 7.00% semi-annual coupon bond would also sell at a discount, because the coupon rate is less than the required market yield. The 7.25% annual coupon bond would sell at par, because the coupon rate equals the required market yield. Note: The information that this is an annual coupon bond is not relevant for this question.

For the examination, remember the following relationships:

2.Kirsten Thompson, CFA candidate, is studying the relationships between a bond’s coupon rate and the required market yield. One study question concerns a new-issue, 15-year, $1,000 face value 6.75 percent semi-annual coupon bond priced at $1,075. Which of the following choices correctly describes the bond and accurately represents the relationship of the bond’s market yield to the coupon?

A)   Premium bond, required market yield is less than 6.75%.

B)   Premium bond, required market yield is greater than 6.75%.

C)   Discount bond, required market yield is less than 6.75%.

D)   Discount bond, required market yield is greater than 6.75%.

The correct answer was A)

When the issue price is greater than par, the bond is selling at a premium. We also know that the current market required rate is less than the coupon rate of 6.75%, because the bond is selling at a premium.

For the examination, remember the following relationships:

3.Gabrielle Daniels and Edin Roth, CFA candidates, are discussing the relationship between a bond’s coupon rate and the required market yield. Looking through the local newspaper, they see a new-issue, 10-year, $1,000 face value 8.00 percent semi-annual coupon bond priced at $950. Daniels makes the following statements. Which statement does Roth tell her is CORRECT?

A)   The current market required rate is less than the coupon rate.

B)   The bond is selling at a premium.

C)   The bond is low-quality.

D)   The bond is selling at a discount.

The correct answer was D)

When the issue price is less than par, the bond is selling at a discount.

We also know that the current market required rate is greater than the coupon rate because the bond is selling at a discount. We cannot determine credit quality from the information provided.

4.Given that the information on the three bonds below is at issuance, which of the following choices correctly identifies the bonds as premium, par, and discount.

A)                                         premium                            par  discount

B)                                         discount                            premium par

C)                                         par                                    premium discount

D)                                         par                                    discount  premium

The correct answer was B)

For the examination, remember the following relationships:

5.If the market rate of interest is greater than the coupon rate, the bond will be valued:

A)   at par.

B)   less than par.

C)   greater than par.

D)   cannot be determined.

The correct answer was B)

If the Coupon Rate > market yield, then bond will sell at a premium.
If the Coupon Rate < market yield, then bond will sell at a discount.
If the Coupon Rate = market yield, then bond will sell at par.

6.Given that the coupon rate of a bond is higher than the market interest rate on bonds with similar maturities and payment structures, the bond will be trading:

A)   at par value.

B)   at a discount.

C)   with a higher yield.

D)   at a premium.

The correct answer was D)

If the bond provides investors with a higher coupon rate than the market interest rate the bond has to be trading at a premium relative to its par value otherwise there is an arbitrage opportunity.