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If you have a very low tolerance for risk, which of the following bonds would you be least
likely to hold in your portfolio?
A) A federal government bond
B) A provincial bond
C) A corporate bond with a rating of Aaa
D) A corporate bond with a rating of Baa
Answer: D
Diff: 1 Type: MC Page Ref: 115
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
The collapse of the subprime mortgage market ____.
A) did not affect the corporate bond market
B) increased the perceived riskiness of Treasury securities
C) reduced the Baa-Aaa spread
D) increased the Baa-Aaa spread
Answer: D
Diff: 3 Type: MC Page Ref: 116
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
The collapse of the subprime mortgage market increased the spread between Baa and
default-free Canada bonds. This is due to ____.
A) a reduction in risk
B) a reduction in maturity
C) a flight to quality
D) a flight to liquidity
Answer: C
Diff: 2 Type: MC Page Ref: 116
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
During a "flight to quality" ____.
A) the spread between Canada bonds and Baa bonds increases
B) the spread between Canada bonds and Baa bonds decreases
C) the spread between Canada bonds and Baa bonds is not affected
D) the change in the spread between Canada bonds and Baa bonds cannot be predicted
Answer: A
Diff: 2 Type: MC Page Ref: 116
Skill: Applied
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates