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BNAD 301 Exam 3 questions with correct answers 2024/2025
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BNAD 301 Exam 3 questions with correct answers 2024/2025
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BNAD 301 Exam 31. One general difference between U.S. Treasury bonds and corporate bonds is: - ANS(E)
Treasury bonds are sold at auction while the price of corporate bonds is set in advance.
2. What determines the price of a Treasury bond after the initial sale? - ANS(D) Supply and
demand in the bond market.
3. A bond typically has a higher yield if it (mark all that apply): - ANS(E) Is issued by a firm in
financial difficulty.
5. Who is most likely to invest in municipal bonds? Persons who: - ANS(A) Have high income.
6. Who is most likely to invest in real estate? Persons who: - ANS(C) Have a high tolerance for
risk
7. To get the highest yield, one would generally want to buy a bond rated: - ANS(A) A
8. If the price set by the auction is $960, then at that time its yield is closest to: - ANS(AD) Yield
= $84/$916 = 1/24 = 9.2%.
9. If the yield set by the auction is 6.5%, then the price of the bond is closest to: - ANS(AD) 945
Market price = $1,000/1.065 = $939.
10. If on September 1 the market price of the bond is $975, then at that time its yield is closest
to: - ANS(AE) Yield = ($1,000/$975)3 !1 = 7.9%; the exponent equals 1/N where N=a year (i.e.
four months) remaining until the bond matures
11. If on September 1 the yield on the bond is 5%, then at that time its market price is closest to:
- ANS(BC) 985 Market Price = $1,000/(1.05)a = $984.
12. If the price set by the auction is $4,500, then at that time the (annualized) yield is closest to:
- ANS(A) 1% Yield = ($5,000/$4,500)1/10 = 1.1%.
13. If the yield on the bond is 1%, four years later, then the market price at that time is closest
to: - ANS(AE) Market Price = $5,000/(1.01)6 = $4,710
14. If a consumer invests $6,000 for six years at an annual yield of 6%, then how much does
she have at the end of this period (to the nearest dollar)? - ANS(BD) Payment = $6,000×(1.06)6
= $8,511.
, If the Chinese government decided to sell large quantities of U.S. Treasury bonds, then the
yields on those bonds would ______, which would ______ the burden on U.S. taxpayers. -
ANSRise; increase.
16. An incentive problem in the bond ratings industry is: - ANS(A) A firm generally chooses
which company rates its bonds.
17. The best time to invest in bonds is: - ANS(C) When you expect interest rates to fall.
18. Suppose that the yield on a 1-year Treasury bill remains constant throughout the entire year,
from the moment that it is auctioned until a moment before it matures. Then its market price
______ throughout the year - ANS(B) Rises continually.
19. Suppose that the market price of a 1-year Treasury bill remains constant throughout the
entire year, from the moment that it is auctioned until a moment before it matures. Then its yield
______ throughout the year. - ANS(B) Rises continually.
20. An asset has greater liquidity if it can be sold (mark all that apply): - ANS(A) Quickly.
(B) At a predictable price.
(C) With low transactions costs
21. Based on the discussion in class, what are the three most common sources of unplanned
financial distress for consumers (mark three)? - ANS(A) Job loss.
(B) Divorce
(E) Medical problems.
22. In general, if bond prices rise, then bond yields ______ and other assets' rates of return
______. - ANS(A) Fall; fall.
23. An "inverted yield curve" refers to the situation in which: - ANS(B) Short-term bonds offer
higher yields then long-term bonds.
24. An inverted yield curve is typically interpreted as an advance signal of a: - ANS(A)
Weakening economy.
25. Which class of bonds is currently paying the lowest yields? - ANS(C) Top-rated municipal
bonds
26. When market interest rates change, what changes for a typical corporate bond? (Mark all
that apply.) - ANS(B) The price of the bond.
27. What is required for free entry (mark all that apply)? - ANS(B) Sellers and potential entrants
have the same long run costs.
(C) Sellers and potential entrants have the same long run access to markets
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