MCQ Quiz

8 questions

Question 1 of 8

Assuming a constant yield-to-maturity, as a non-callable, fixed-coupon bond approaches maturity, its price will:

Increase if trading at a premium due to amortization of the premium.
Decrease if trading at a discount due to amortization of the discount.
Increase if trading at a discount due to the pull-to-par effect.

id: 7 model: Grok topic: Pull-to-Par Effect

Explanation

C is correct. Discount bonds rise toward par as maturity nears, assuming constant YTM. A is incorrect; premium bonds decrease toward par. B is incorrect; discount bonds increase, not decrease.

Question 2 of 8

For two bonds with the same maturity and yield, the one with higher price volatility most likely has:

A higher coupon rate.
A lower coupon rate.
The same coupon rate but traded at a premium.

id: 8 model: Grok topic: Price Volatility and Duration

Explanation

B is correct. Lower-coupon bonds have higher duration and thus greater price volatility for yield changes. A is incorrect; higher coupons reduce duration. C is incorrect; premium pricing lowers effective duration compared to discount.

Question 3 of 8

For a bond trading at a premium, the relationship among its coupon rate (CR), current yield (CY), and yield-to-maturity (YTM) is:

YTM > CY > CR.
CR > CY > YTM.
CY > CR > YTM.

id: 9 model: Grok topic: Yield Measures

Explanation

B is correct. For premium bonds, CR > CY > YTM due to price above par and capital loss to maturity. A is incorrect; applies to discount bonds (YTM > CY > CR). C is incorrect; CY is between CR and YTM.

Question 4 of 8

The price-yield curve for an option-free, fixed-coupon bond is:

Convex, with price increasing as yield increases.
Concave, with price decreasing as yield increases.
Convex, with price decreasing as yield increases.

id: 10 model: Grok topic: Price-Yield Relationship

Explanation

C is correct. Inverse relationship (price down as yield up) with positive convexity (curve bows upward). A is incorrect; direction is inverse. B is incorrect; shape is convex, not concave.

Question 5 of 8

A bond's current yield equals its yield-to-maturity only if:

The bond is a zero-coupon bond.
The bond trades at par value.
The bond has no reinvestment risk.

id: 11 model: Grok topic: Yield Equality Conditions

Explanation

B is correct. At par, CY = CR = YTM. A is incorrect; zeros have CY = 0 < YTM. C is incorrect; reinvestment risk doesn't force equality.

Question 6 of 8

Holding other factors constant, the bond with the lowest interest rate risk is most likely a:

Long-term, low-coupon bond.
Short-term, high-coupon bond.
Long-term, high-coupon bond.

id: 12 model: Grok topic: Factors Affecting Volatility

Explanation

B is correct. Short maturity and high coupon minimize duration and thus interest rate risk. A is incorrect; maximizes duration. C is incorrect; long maturity increases duration despite high coupon.

Question 7 of 8

As a non-callable, fixed-coupon bond approaches maturity, its convexity:

Increases due to higher sensitivity to yield changes.
Remains constant if yield is unchanged.
Decreases as the bond behaves more like a short-term instrument.

id: 13 model: Grok topic: Convexity and Maturity

Explanation

C is correct. Convexity declines with shorter time to maturity. A is incorrect; sensitivity decreases. B is incorrect; convexity changes with time even at constant yield.

Question 8 of 8

All else equal, a bond's Macaulay duration is highest when:

Coupon rate is high and maturity is short.
Coupon rate is low and maturity is long.
The bond is trading at a significant premium.

id: 14 model: Grok topic: Macaulay Duration

Explanation

B is correct. Macaulay duration increases with longer maturity and lower coupon rate. A is incorrect; high coupon and short maturity minimize duration. C is incorrect; premium bonds have lower duration than discount bonds of same maturity and coupon.

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