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Which of the following is most likely to have the greatest amount of default ris

ID: 2661126 • Letter: W

Question

Which of the following is most likely to have the greatest amount of default risk?

A corporate subordinated debenture with three years to maturity and a high coupon rate.

A corporate senior mortgage with five years to maturity and a low coupon rate.

A U.S. Treasury STRIP with twenty years to maturity and no coupon interest payments.

10 points   

Which of the following is the most likely description of bonds with low default risk?

junk bonds

investment grade bonds

premium bonds

10 points   

Two bonds, Bond I and Bond II, are similar except for time to maturity, Bond I has 2 years to maturity and Bond II has 20 years to maturity. If market interest rates are expected to decrease, then which bond would you prefer to own?

Bond I

No difference between Bond I or Bond II

Bond II

10 points   

If the market interest rates remain constant, then as a discount bond matures, what will be the most likely change in the bond

A corporate subordinated debenture with three years to maturity and a high coupon rate.

A corporate senior mortgage with five years to maturity and a low coupon rate.

A U.S. Treasury STRIP with twenty years to maturity and no coupon interest payments.

Explanation / Answer

hich of the following is most likely to have the greatest amount of default risk?

A corporate subordinated debenture with three years to maturity and a high coupon rate.


Which of the following is the most likely description of bonds with low default risk?

premium bonds

A corporate subordinated debenture with three years to maturity and a high coupon rate.

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