Fixed Income - Fixed Income Section 1
46. The price-yield relationship for an option-free bond is most likely a:
- Option : B
- Explanation : The price-yield relationship for an option-free bond is a convex relationship.
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47. The bond is most likely to be priced at a premium above par value when:
- Option : C
- Explanation : When the coupon rate is greater than the market discount rate, the bond is priced at a premium above par value.
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48. According to constant-yield price trajectory, if a bond is selling at a discount, its price:
- Option : A
- Explanation : Assuming that the discount rate does not change, a bond’s value: *decreases over time if the bond is selling at a premium. *increases over time if the bond is selling at a discount. *is unchanged if the bond is selling at par value.
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- Option : B
- Explanation : All else equal, the longer the term to maturity the greater the price volatility.
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50. Bond A has a coupon of 7%. Bond B has a coupon of 4%. All else equal:
- Option : B
- Explanation : All else equal, the lower the coupon rate, the greater the price volatility.
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