Question

1. Which of the following is the most likely to happen if interest rates (and thus bonds yields) were to go up?

a. Bond prices would also increase.
b. Bond coupon rates would decrease.
c. Face value of bonds would also increase.
d. Bond prices would go down.
e. Nothing, since interest rates don't affect bond prices.

2. Which of the following is the correct description of a bond with a coupon rate of 5% and YTM of 4%?

a. At par
b. Below par
c. Above par
d. Discount bond

3. The difference in the yields of bonds with different default risk is called:

a. bond duration
b. liquidity risk
c. credit spread
d. maturity risk
e. credit rating

Answer 1

Question 1: Option D

When interest rates go up, bond price would decline. When the interest rates go down, bond price would increase.

Question 2: Option C

Question 3: Option C

Difference in the yield of bonds with different default risk is termed as Credit spread.