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LOS h: Explain the disadvantages of a callable or prepayable security to an investor.
Q1. Which of the following statements about callable bonds is TRUE?
A) As interest rates fall, the value of a callable bond will exceed that of a similar straight bond.
B) As interest rates decrease, the value to the investor of the call option increases.
C) When yields rise, the value of a callable bond is less sensitive and will exhibit less of a price change than a noncallable bond.
Q2. Price compression:
A) reduces the potential for price appreciation.
B) occurs when a bond's cap and floor are set close together.
C) occurs when demand for a bond is high near the first call date.
Q3. Which of the following statements is FALSE? Compared to a callable bond, a noncallable bond:
A) provides a higher yield.
B) is more attractive to an investor concerned with reinvestment risk.
C) has more predictable cash flows. | 
发表于 2009-3-2 15:35
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