For a fixed-rate bond, which two components are the main, offsetting forms of interest rate risk for investors?
Explanation
Investors face price risk and reinvestment risk which counterbalance depending on horizon relative to duration.
Other questions
A 5-year fixed-rate bond with semiannual coupons has a stated coupon of 4.0% and the market's required semiannual discount rate is 2.5% per period. Which statement is correct about the bond's price at issuance?
Which of the following is the correct formula for accrued interest between coupon dates using a conventional day count approach?
An annual-pay 3-year bond has face value 100 and coupon 2.0% (annual). Spot rates are: 1-year 1.0%, 2-year 1.5%, 3-year 2.0% (all annual). What is the bond price using spot rates (per 100 face)?
If a bond's market price equals its full (dirty) price, which of the following is true on a coupon payment date?
Two bonds are identical except that Bond A has a coupon of 1% and Bond B has coupon of 6%; both mature in 20 years. If market yields rise by 100 bps for both bonds, which will exhibit the greater percentage price decline?
Which statement about yield-to-maturity (YTM) is correct?
A bond is quoted using a 30/360 day-count. To compare its yield versus a government bond quoted using actual/actual, an analyst should use which conversion approximation?
Which spreadsheet function computes the price (clean) of a bond given settlement and maturity dates, coupon rate, yield, redemption, frequency, and basis?
A zero-coupon bond with face value 100 matures in 5 years and sells for 100.763. What is the annualized YTM (assuming annual compounding)?
Which of these best describes matrix pricing?
A bond with face 100 pays semiannual coupons of 3% per annum (1.5 per period). If the semiannual market discount rate increases from 1.6% to 2.0%, what happens to the bond price?
An investor buys a 5-year bond at par with annual coupon 3% and holds it 3 years. All coupons are reinvested at the original YTM. If market rates do not change, what is the investor's realized annualized return over the 3-year horizon?
Which of the following best explains convexity in the price-yield relationship?
Which day-count convention assumes exactly 30 days per month and 360 days per year?
Which of the following is the correct interpretation of yield-to-worst for a callable bond?
A newly issued 7-year non-callable bond with semiannual coupons of 3% per annum is priced using spot rates. Which statement about the spot curve is correct?
Which of these best describes the Z-spread?
An investor holds a 10-year bond to maturity. Immediately after purchase, market yields rise. Which risk affects the investor's total return assuming the investor holds to maturity and coupons are reinvested at new market rates?
Which of the following is true about matrix pricing interpolation when estimating a three-year yield from two-year and five-year comparable bond yields?
A bond was issued at par with coupon equal to the then-market rate. Years later market yields fall. If the bond is not callable and the investor holds to maturity, which statement is true?
Which statement about bond convexity is correct?
When using the PV spreadsheet function to price a fixed-rate bond with periodic coupon PMT, periodic market discount rate r, number of periods N, and future value FV, which PV call is correct (end-of-period payments)?
Which of the following is true about matrix pricing when comparable bonds are scarce?
A floating-rate note (FRN) pays MRR + quoted margin QM. At a reset date the market required margin (discount margin DM) is greater than QM. What is the expected price behavior of the FRN at that reset?
Which of the following measures is the yield spread over a government bond of the same maturity (single tenor)?
A 4-year bond with a 3% annual coupon has a par rate (annual) of 2.5%. Which statement is true at par pricing?
An analyst observes a bond with Z-spread of 27 bps over the government spot curve. Which of the following interpretations is most accurate?
Which of the following best explains why most corporate bonds are priced using a spread over government or swap curves rather than raw government yields alone?
Which of the following is NOT a reason why a bond issued by a high-yield issuer has a higher YTM than an investment-grade bond?
A bond's flat (clean) price is 98.50, accrued interest is 0.75, what is the full (dirty) price that the buyer must pay on settlement?
Which calculation gives the full price (PVFull) from the present value as of the last coupon date (PV) when settlement is t days into a coupon period of total length T and periodic yield r (per period)?
A corporate bond's YTM is 4.548% quoted with annual coupons. Convert this yield to a semiannual bond-equivalent yield (periodicity 2). Which formula to use?
Which of the following best describes the current yield on a bond?
Which of the following is an effect of a bond being issued 'at par' at initial issuance?
Which statement about zero-coupon (strip) bonds is true?
An investor buys a bond at a premium and holds it to maturity. Ignoring default risk, what is the likely realized capital gain or loss?
Which of the following best describes the 'flat price' that dealers quote?
Which function in Excel/Sheets returns the bond yield-to-maturity given settlement date, maturity date, coupon rate, price, redemption value, frequency, and basis?
Which of the following is true when converting a money market discount quote to a bond-equivalent yield (BEY) on a 365-day add-on basis?
Which of the following statements about negative yields-to-maturity is correct?
A callable bond has a schedule of decreasing call prices over time (e.g., 103.25 in year 3, 101.75 in later years). If interest rates decline substantially, which outcome is most likely?
Which is the primary reason matrix pricing is used to quote many bond prices on vendor terminals such as Bloomberg?
A bond makes semiannual payments and is quoted on a semiannual bond basis. Which of these statements about compounding frequency is correct?
Which of the following is a correct expression for the price of a money-market instrument quoted on a discount rate DR assuming FV=100, Days until maturity D and a Year convention Y?
Which statement about par, spot, and forward curves is correct when the spot curve is upward sloping?
Compute approximate accrued interest on a semiannual 4.375% coupon bond settlement on June 27 when last coupon was May 15 and next coupon on Nov 15 using actual/actual day count: days since last coupon = 43 and coupon = 4.375% annual. What is AI per 100 par?
A bond's YTM is 2.5% on a semiannual basis (period yield = 1.25%). What is the effective annual rate (EAR)?
Which of the following conversions is correct for converting an APR with m periods to an APR with n periods?
Which of the following best describes the 'government equivalent yield' for a corporate bond?