Question

(I) There is always a negative relationship between YTM and prices of bond; (II) A discount...

(I) There is always a negative relationship between YTM and prices of bond; (II) A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date.

Select one:

a. (I) is true, (II) false.

b. (I) is false, (II) true.

c. Both are true.

d. Both are false.

(I)A banker's acceptance is not always a bearer instrument; (II) A banker's acceptance is used for goods that have not yet been transferred from the seller to the buyer.

Select one:

a. (I) is true, (II) false.

b. (I) is false, (II) true.

c. Both are true.

d. Both are false.

(I) Most institutional dealers for T-bills will submit bids in the form of noncompetitive bids; (II) Competitive bids will pay the highest price for T-bills, while non-competitive bidders will pay the average price.

Select one:

a. (I) is true, (II) false.

b. (I) is false, (II) true.

c. Both are true.

d. Both are false.

Homework Answers

Answer #1

1. Both statements are true.

There is a inverse relationship between YTM and bond price and vice-versa versa.

Discount bond are those bond which are issued at discount i.e below face value and at maturity repaid at face value.

2. 1st statement is false

Because banker's acceptance bearer instrument. It is used as a short term debt instrument.

2nd statement is true

Because banker's acceptance is used in international trade market where buyer issue it with a date after a shipment is due to be delivered to seller.

3. 1st statement is false

Because institutional investors such as bank, FI MF are eligible to make bid under competitive bids.

2nd statement is true

Non- competitive bidders will pay average price because it is made by small investor to purchase a debt. Whereas competitive bid will pay highest price because it is made by companies.

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