Question

Q) duration is a measure of volatility of a bond. Which of the following bonds has the greatest volatility based their respective duration?

a)4.5% b)4.5 years . c) 6.5% d) 6.5 years

Q) a DRIP

a) is a new form of real rate of return bonds b) allows an investortor receive a stock dividend rather than a cash dividend c) allows an investor to purchase additional shares at a 10% discount d) is a dividend tax credit

Q) when is a floating rate preferred advantageous to an investor?

a) if market interest rate have increased b) if market interest rates have declined c) if the company's earnings have increased d) doesn't benefit the investor, benefits the company

Q) a canadian company issued a bond in japan that paid interest and the face value at maturity in japanese yen. This is an example of a(n):

a) domestic bond b) eurobond c) foriegn bond d) collateral trust bond.

Answer 1

Ans:

1) option D - 6.5 years

when duration is a measure of volatility of a bond, the greater the length of the bond it is more volatile.hence a bond with the duration of 6.5 years will have greatest volatility.

2) Option B

allows an investor receive a stock dividend rather than a cash dividend

In case of dividend reinvestment plan(DRIP) , the dividend the investor receives from the company is used to purchase the companies stocks.Hence in this plan investors will reinvest their cash dividend and purchase more stocks.

3) Option A

if market interest rate have increased

Investment in floating rate preferred is advantages to the investors when interest rates rises.This will increase the dividend income and the potential capital gains.Hence floating rate preferred is advantageous to an investor if market interest rate have increased.

4) Option C

foreign bond

A foreign bond is a bond issued by a foreign borrower in currency of country in which it is sold. In this case a canadian company issued a bond in japan in japanese yen.