1) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?
A) 5 percent
B) 10 percent
C) 15 percent
D) 20 percent
2) If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding?
A) A bond with one year to maturity
B) A bond with five years to maturity
C) A bond with ten years to maturity
D) A bond with twenty years to maturity
3) An equal decrease in all bond interest rates
A) increases the price of a five year bond more than the price of a ten year bond.
B) increases the price of a ten year bond more than the price of a five year bond.
C) decreases the price of a five year bond more than the price of a ten year bond.
D) decreases the price of a ten year bond more than the price of a five year bond.