答案和详解如下： 1.Which of the following statements relating to reinvestment risk for bonds is TRUE? A) Long-term bonds should be purchased if the investor anticipates higher reinvestment rates. B) Zero coupon bonds have no reinvestment risk over their term. C) If the investor anticipates lower reinvestment rates, high coupon bonds should be purchased. D) Unless the reinvestment rate equals the yield to maturity, the holding period return will be less than the yield to maturity. The correct answer was B) This statement is true only if the investor holds the bond until maturity. Reinvestment risk means that a bond investor risks having to reinvest bond cash flows (both coupon and principal) at a rate lower than the promised yield. Reinvestment risk increases with longer maturities and higher coupons, and decreases for shorter maturities and lower coupons. While a bond investor can eliminate price risk by holding a bond until maturity, he usually cannot eliminate bond reinvestment risk. One exception is zero-coupon bonds, since these bonds deliver payments in one lump sum at maturity. There are no payments over the life to reinvest. The statement, "Long-term bonds should be purchased if the investor anticipates higher reinvestment rates," should read, "Short-term bonds...".If an investor expects interest rates to rise, he would want a bond with a shorter maturity so that he received his cash flows sooner and could reinvest at the higher rate. Also, there is less prepayment risk with shorter maturities. The statement, "If an investor anticipates lower reinvestment rates, high coupon bonds should be purchased," should read, "...low coupon bonds should be purchased...." Again, if an investor expects interest rates to fall, he would want a lower-coupon bond so that he could reinvest the payments and still maintain his expected YTM. The statement that begins, "Unless the reinvestment rate...," is partially true. However, the holding period return (covered in a later LOS) could be less or greater than the original yield to maturity (YTM). Over the investor's holding period, interest rates are likely to fluctuate both up and down; at some points the investor will reinvest at a higher rate than the original YTM and sometimes he will reinvest at a lower rate. 2.The reinvestment assumption is less important if the coupon and term to maturity are:
A) lower longer B) higher longer C) higher shorter D) lower shorter The correct answer was D) This question is asking: when is the risk of a bond investor having to reinvest bond cash flows (both coupon and principal) at a rate lower than the promised yield? Reinvestment risk increases with longer maturities and higher coupons, and decreases for shorter maturities and lower coupons. Reinvestment risk is important because the yield-to-maturity (YTM) calculation for a bond assumes that the investor can reinvest cash flows at exactly the coupon rate. (Note: YTM calculations are discussed in a later LOS.) All else equal, the bond with the shorter term to maturity is less sensitive to changes in interest rates and prepayment rates. Here, this means that a shorter-term bond has lower reinvestment risk than a longer-term bond. All else equal, a lower coupon rate means that it is more likely that the investor can reinvest the coupon cash flow at near or equal to the yield-to-maturity. Here, this means that a lower coupon bond has less reinvestment risk. In summary, reinvestment risk is least important with the combination of shorter maturity and lower coupon rate.
3.Kyle Barnes, CFA, is meeting his friend, Lita Rombach, about possible bond investments. Rombach is concerned about reinvestment risk. Which of the following statements about Rombach is TRUE? Rombach:
A) will prefer a higher coupon bond to a lower coupon bond. B) will prefer a noncallable bond to a callable bond. C) is most concerned in an increasing interest rate environment. D) need only be concerned about reinvestment risk on coupon payments. The correct answer was B) A noncallable bond reduces reinvestment risk by reducing the risk of repayment.
With her primary concern being reinvestment risk, Romach will prefer a lower coupon bond to a higher coupon bond. An investor concerned about reinvestment risk is most concerned about a decreasing interest rate environment. When interest rates decrease, the investor is forced to reinvest coupons and other cash flows at a lower rate. With a lower coupon, this risk is less. Reinvestment risk applies to all bond cash flows, not just the coupon payments.
4.Silhouette Enterprises must make a balloon loan payment of $1,000,000 in 3 years. The firm’s treasurer wants to purchase a bond that will provide funds for repayment and minimize reinvestment risk. Assume the company has the following four investment options (all with face values of $1,000,000). Market rates are at 8.00 percent. All bonds are noncallable and are otherwise similar except as noted. Which option best meets the treasurer’s requirements?
A) A 4-year, zero coupon bond priced to yield 8.50%. B) A 3-year, 8.00% semi-annual coupon bond priced at par. C) A 2-year, zero-coupon bond priced to yield 9.00%. D) A 3-year, zero coupon bond priced to yield 8.00%. The correct answer was D) Since all the choices are non-callable, the treasurer will prefer a zero-coupon to a coupon bond. While a bond investor can eliminate price risk by holding a bond until maturity, he usually cannot eliminate reinvestment risk. One exception is zero-coupon bonds, since these bonds deliver payments in one lump sum at maturity. Although the 3-year coupon bond fulfills the treasurer’s requirement concerning funds for repayment, it does not minimize reinvestment risk.
Among the zero-coupon bonds, the one that best matches the loan’s maturity will minimize reinvestment risk. The treasurer will thus prefer the 3-year, zero-coupon bond. If he purchased the 4-year zero-coupon bond, he would have to sell the bond prior to maturity to payoff the loan and would face price risk. The 2-year zero-coupon bond is attractive because of the higher yield. However, the bond matures one year before the loan is due and would expose the firm to reinvestment risk.
5.Which of the following statements about reinvestment risk is least accurate?
A) A bond's yield calculation assumes that coupon cash flows and principal can be reinvested at the computed yield to maturity. B) A bond investor can eliminate reinvestment risk by holding a coupon bond until maturity. C) Reinvestment risk is greater for amortizing securities. D) An investor concerned about reinvestment risk is most concerned with a decrease in interest rates. The correct answer was B) The key word here is coupon bond. While an investor in a fixed-coupon bond can usually eliminate price risk by holding a bond until maturity, the same is not true for reinvestment risk. The receipt of periodic coupons exposes the investor to the risk that he will have to invest the coupons at a lower rate, thus negatively impacting his holding period return. An investor can greatly decrease reinvestment risk by holding a zero-coupon, noncallable bond that is not subject to other prepayments (or embedded options). Zero-coupon bonds deliver all cash flows in one lump sum at maturity.
The other statements about bond yield calculations and reinvestment risks are correct.
6.An investor holds a 20-year, semi-annual 8.00 percent coupon Treasury bond issued at par. Market interest rates are currently at 6.50 percent. The bond is noncallable. A coupon payment is due this week. Which of the following choices best represents the type of risk the investor faces?
A) Prepayment risk. B) Reinvestment risk. C) Liquidity risk. D) Credit risk. The correct answer was B) Reinvestment risk is the risk that if rates fall, cash flows will be reinvested at lower rates, resulting in a holding return lower than that expected at purchase. Here, the investor will likely have to reinvest the coupon at the lower market interest rate, negatively impacting his holding period return.
Prepayment risk (and call risk) is the risk that the issuer will repay principal prior to maturity. Prepayments are most likely in a declining interest rate environment because it is cheaper to issue replacement debt. Here, the bond is a Treasury and is noncallable, so the investor can eliminate prepayment risk by holding the bond until maturity. Liquidity risk addresses how quickly and easily an investor can sell a bond. A bond that trades thinly or in small amounts exposes an investor to liquidity risk. Liquidity risk is not a concern with Treasury bonds. Credit risk is the risk that the issuer will be unable to make coupon or principal payments as scheduled. Any change in the timing of the receipt of cash flows affects the bond’s holding period return. Credit risk is not a concern with Treasury securities.
7．The risk that an investor will earn less than the quoted yield-to-maturity on a fixed-coupon bond due to a decrease in interest rates is known as:
A) prepayment risk. B) liquidity risk. C) event risk. D) reinvestment risk. The correct answer was D) Reinvestment risk is the risk that if rates fall, cash flows will be reinvested at lower rates, resulting in a holding return lower than that expected at purchase.
Prepayment risk (and call risk) is the risk that the issuer will repay principal prior to maturity. Prepayments are most likely to occur in a declining interest rate environment because it is cheaper to issue replacement debt. Liquidity risk addresses how quickly and easily an investor can sell a bond. A bond that trades thinly or in small amounts exposes an investor to liquidity risk. Event risk means that the issuer could face a single event or circumstance that would affect its ability to service/repay the debt. For example, a corporation could suffer an industrial accident.
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发表于 2008-4-8 15:48
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