Which of the following would be classified as a junk bond? A bond rated Baa3 by

Question

Which of the following would be classified as a junk bond? A bond rated Baa3 by Moody's A bond rated Bal by Moody's A bond rated BBB- by Standard and Poor's A bond rated A- by Standard and Poor's Which of the following bonds will go down in value by the largest amount if rates go up? A newly-issued U.S. Treasury Bond with 30 years till maturity A junk bond with 5 years till maturity A U.S. Treasury Bill that was issued a few months ago A Corporate Bond with an A+ rating from Moody's and 10 years till maturity If markets are efficient, which of the following statements are true? You cannot expect to make more money by investing in stock compared to invest in bonds The best time of the year to purchase stock in Wal-Mart is just before the Christ shopping season. If you invest in stocks that are riskier, you will, on average, earn a higher return if you invest in "safe" stocks No one is actually plotting out charts of a stock's past price movements because waste of time If the Federal Reserve wants to raise interest rates, what will they do? Instruct all banks to raise their prime lending rate Increase the money supply Instruct the Treasury to remove some money from circulation Sell Treasury Bonds to the major banks

Explanation / Answer

7) A bond rated Baa3 by Moody's is classified as junk bond. The junk Bonds carry ratings Baa1 to C for Moody's ratings methodology ,bonds falling in this bracket of rating are classified as junk bonds. Thus choose A.

8) The Bond with the largest Duration(synonymous with time here) shall have maximum effect of change in interest rate. Since the newly issued Treasury Bond with 30 years to maturity has maximum duration of 30 years therefore it shall loss maximum value when interest rate goes up. Thus choose A) A newly issued Treasury Bond with 30 years to maturity

9)If markets are efficient that means no money can be made by technical analysis that is plotting charts and finding patterns and predicting the prices. If markets are efficient that means no one would be plotting out charts of stock's past prices because that would be waste of time as the prices would show no pattern.Hence choose D.

10) The Fed controls the interest rate by its selling/buying of treasury securities through open market operations, when Fed wants to reduce cash in the system it sells the treasury securities thereby reducing cash in the system, thus the Fed shall Sell Treasury Bonds to the major banks ,that would reduce cash in the banking system and thus increase the interest rate.Thus choose D.

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