答案和详解如下： 1．Which of the following statements concerning reinvestment risk is TRUE? A) Reinvestment risk is highest for zero-coupon bonds. B) Lower coupon bonds have more reinvestment risk. C) Reinvestment risk decreases with longer time horizons. D) Reinvestment risk is increased if there are prepayment provisions on the bond. The correct answer was D) Reinvestment risk is increased if there are prepayment provisions that return a large amount of principal to the lender at a time when interest rates have declined. Note that the other statements are false. Reinvestment risk is lowest for zero coupon bonds – a corollary of this statement is that the lower the coupon, the less reinvestment risk there is for the bond. Also, reinvestment risk tends to increase with longer time horizons.
2．Which of the following statements about balancing reinvestment risk and price risk is TRUE? When interest rates:
A) decline, price risk decreases and reinvestment risk decreases. B) rise, price risk increases and reinvestment risk increases. C) decline, price risk decreases and reinvestment risk increases. D) rise, price risk decreases and reinvestment risk increases. The correct answer was C) All else equal, reinvestment risk and price risk move in opposite directions. For example, when interest rates rise, bond prices decrease, but the loss is at least partially offset by decreased reinvestment risk (it is less likely that a bond will be called and bondholders can invest coupon payments at higher yields). When interest rates fall, price risk decreases because the bond value is rising and reinvestment risk increases because it is more likely that the issuer/borrower will call the security and the bondholder must reinvest coupon payments at lower yields.
3．Which of the following statements is TRUE?
A) Mortgage backed and asset backed securities have lower reinvestment risk than straight coupon bonds. B) The prepayment option on a mortgage loan benefits the issuer. C) Zero-coupon bonds have high interest rate risk and high reinvestment risk. D) A bond with high reinvestment risk also has high price, or interest rate risk. The correct answer was B) In the case of a mortgage or auto loan, the issuer is the borrower and is the party that benefits from the prepayment option. In a declining interest rate environment, the issuer can retire higher cost debt and replace it with lower cost debt (i.e. refinancing a mortgage). When an issuer (borrower) calls, or prepays, the lending institution (the security holder) faces reinvestment risk because it must reinvest the proceeds at lower rates. Zero-coupon bonds have high interest rate risk and low reinvestment risk. An investor can nearly eliminate reinvestment risk by holding a noncallable zero-coupon bond until maturity because zero-coupon bonds deliver all cash flows in one lump sum at maturity. Mortgage backed and other asset backed securities have high reinvestment (or prepayment) risk because in addition to cash flows from periodic interest payments (like bond coupons), these securities have repayment of principal. The lower the interest rate, the higher chance that the loans underlying these assets will repay in full due to refinancings. A bond, such as a zero coupon bond, can have high interest rate risk (because its single cash flow subjects it to the full amount of discounting when interest rates change) and low reinvestment risk (the single cash flow minimizes prepayment risk).
4．Which of the following choices correctly places callable bonds, straight coupon bonds, mortgage-backed securities, and zero-coupon bonds in order from the type of security with the least reinvestment risk to the one with the most reinvestment risk?
A) zero-coupon bonds, mortgage-backed securities, straight coupon bonds, callable bonds. B) callable bonds, straight coupon bonds, zero-coupon bonds, mortgage-backed securities. C) mortgage-backed securities, zero-coupon bonds, callable bonds, straight coupon bonds. D) zero-coupon bonds, straight coupon bonds, callable bonds, mortgage-backed securities. The correct answer was D) Of the three choices, zero-coupon bonds have the least reinvestment risk. An investor can nearly eliminate reinvestment risk by holding a noncallable zero-coupon bond until maturity because zero-coupon bonds deliver all cash flows in one lump sum at maturity. Straight coupon bonds (no prepayment or other embedded options) have the next most reinvestment risk because of the periodic coupon payments. If interest rates decline, the bondholder will have to reinvest the coupons at a rate lower than that required to earn the original expected yield-to-maturity. Callable bonds have more reinvestment risk because the right to prepay principal compounds reinvestment risk. A call option is one form of prepayment right that benefits the issuer, or borrower. Mortgage backed and other asset backed securities have the most prepayment risk because in addition to cash flows from periodic interest payments (bond coupons, for example), these securities have periodic repayment of principal. The lower the interest rate, the higher chance that the loans underlying these assets will repay in full | 
发表于 2008-4-8 15:50
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