# Fixed Income - Fixed Income Section 2

>>>>>>>>Fixed Income Section 2

• A

Returns will not change.  • B

Returns will be higher.  • C

Returns will be lower.  • Option : C
• Explanation : In a buy-and-hold strategy if the market interest rates are lower in the future, the returns will decrease because the reinvestment income will decrease.

• A

The investor holds the bond to maturity.  • B

The investor does not default.  • C

The investor reinvests the coupon interest payments at varying interest rates.  • Option : C
• Explanation : The investor reinvests the coupon interest payments at the same interest rate.

• A

Capital gains earned.  • B

Coupon payments reinvested.  • C

Principal repaid.  • Option : A
• Explanation : When a bond is held to maturity, there is no capital gain or loss because the carrying value of the bond at maturity is the same as the redemption amount.

• A

lowest coupon rate.  • B

highest coupon rate.  • C

coupon rate significantly different from YTM.  • Option : B
• Explanation : A higher coupon rate means that more of the bond's value comes from coupon and less from the market interest rate.

• A

7%, 290.45.  • B

8%, 292.18.  • C

10%, 291.45.  • Option : B
• Explanation : Annualized holding period return is the IRR of the investment:
N = 3, PV = -1,025.78, PMT = 90, FV = \$1,000, CPT I/Y. I/Y = 8%.
The total portion of coupon payments and reinvestment return 90(1.08)² + 90(1.08) + 90 = \$292.18.
Related Quiz.
Fixed Income Section 2