Exam (elaborations)
Sample exam
- Institution
- University Of Toronto (U Of T )
Exam of 12 pages for the course at U of T (Sample exam)
[Show more]
Seller
Follow
Content preview
, 2UTSC: MGE C71 – SAMPLE EXAM: Solutions
Question 1. (15 Marks)
SOLUTION:
A) As covered in class the impacts of rising interest rates on bonds with different
maturities when all bonds are purchased at par are:
i) the only bond whose return equals the initial yield to maturity is one whose
time to maturity is the same as the holding period. (2 marks)
ii) a rise in interest rates is associated with a fall in bond prices, resulting in
capital losses on bonds whose terms to maturity are longer than the holding
period. (2 marks)
iii) the more distant a bond’s maturity, the greater the size of the percentage
price change associated with an interest-rate change. (2 marks)
iv) the more distant a bond’s maturity, the lower the rate of return that occurs as
a result of the increase in interest rate. (2 marks)
v) even though a bond has a substantial initial interest rate, its return can turn
out to be negative if interest rate rises (enough). (2 marks)
B) Most students are puzzled by the fact that a rise in interest rates can mean that a
bond has been a poor investment, it is important for them to recognize that a rise in
the interest rate means that the price of a bond has fallen and hence a capital loss,
which can be significant to make a bond poor investment. (3 marks)
C) There would be no change to the answer to part A if all bonds were purchased at a
discount rather than at par. (2 marks)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller yudasu. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for CA$11.60. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75632 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now