Fixed Income - Fixed Income Section 1

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46. The price-yield relationship for an option-free bond is most likely a:

  • Option : B
  • Explanation : The price-yield relationship for an option-free bond is a convex relationship.
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47. The bond is most likely to be priced at a premium above par value when:

  • Option : C
  • Explanation : When the coupon rate is greater than the market discount rate, the bond is priced at a premium above par value.
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48. According to constant-yield price trajectory, if a bond is selling at a discount, its price:

  • Option : A
  • Explanation : Assuming that the discount rate does not change, a bond’s value: *decreases over time if the bond is selling at a premium. *increases over time if the bond is selling at a discount. *is unchanged if the bond is selling at par value.
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