Question 1

The duration of a coupon bond

Accepted Answer

A)  does not change after the bond is issued. 
B)  can accurately predict the price change of the bond for any interest-rate change. 
C)  will decrease as the yield to maturity decreases. 
D)  All of the options are true. 
E)  None of the options are true. 
A)  does not change after the bond is issued. 
B)  can accurately predict the price change of the bond for any interest-rate change. 
C)  will decrease as the yield to maturity decreases. 
D)  All of the options are true. 
E)  None of the options are true.

Question 2

Ceteris paribus, the duration of a bond is negatively correlated with the bond's

Accepted Answer

A)  time to maturity. 
B)  coupon rate. 
C)  yield to maturity. 
D)  coupon rate and yield to maturity. 
E)  None of the options are correct. 
A)  time to maturity. 
B)  coupon rate. 
C)  yield to maturity. 
D)  coupon rate and yield to maturity. 
E)  None of the options are correct.

Question 3

An 8%, 15-year bond has a yield to maturity of 10% and duration of 8.05 years. If the market yield changes by 25 basis points, how much change will there be in the bond's price?

Accepted Answer

A)  1.83% 
B)  2.01% 
C)  3.27% 
D)  6.44% 
A)  1.83% 
B)  2.01% 
C)  3.27% 
D)  6.44%

Question 4

The duration of a 20-year zero-coupon bond is

Accepted Answer

A)  equal to 20. 
B)  larger than 20. 
C)  smaller than 20. 
D)  equal to that of a 20-year 10% coupon bond. 
A)  equal to 20. 
B)  larger than 20. 
C)  smaller than 20. 
D)  equal to that of a 20-year 10% coupon bond.

Question 5

Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bond's

Accepted Answer

A)  term to maturity is lower. 
B)  coupon rate is lower. 
C)  yield to maturity is higher. 
D)  term to maturity is lower and yield to maturity is higher. 
E)  None of the options are correct. 
A)  term to maturity is lower. 
B)  coupon rate is lower. 
C)  yield to maturity is higher. 
D)  term to maturity is lower and yield to maturity is higher. 
E)  None of the options are correct.

Question 6

Consider a six yearannual bond paying a 7% coupon, with a yield to maturity of 5.0%. What is the duration of the bond?

Accepted Answer

A)  4.925 
B)  5.148 
C)  5.236 
D)  5.687 
A)  4.925 
B)  5.148 
C)  5.236 
D)  5.687

Question 7

Which of the following is not true?

Accepted Answer

A)  Holding other things constant, the duration of a bond increases with time to maturity. 
B)  Given time to maturity, the duration of a zero-coupon decreases with yield to maturity. 
C)  Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower. 
D)  Duration is a better measure of price sensitivity to interest-rate changes than is time to maturity. 
E)  All of the options are correct. 
A)  Holding other things constant, the duration of a bond increases with time to maturity. 
B)  Given time to maturity, the duration of a zero-coupon decreases with yield to maturity. 
C)  Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower. 
D)  Duration is a better measure of price sensitivity to interest-rate changes than is time to maturity. 
E)  All of the options are correct.

Question 8

The duration of a par-valueannual bond with a coupon rate of 8.7% and a remaining time to maturity of 6 years is

Accepted Answer

A)  6.0 years. 
B)  5.1 years. 
C)  4.27 years. 
D)  3.95 years. 
E)  None of the options are correct. 
A)  6.0 years. 
B)  5.1 years. 
C)  4.27 years. 
D)  3.95 years. 
E)  None of the options are correct.

Question 9

Holding other factors constant, which one of the following bonds has the smallest price volatility?

Accepted Answer

A)  5-year, 0% coupon bond 
B)  5-year, 12% coupon bond 
C)  5 year, 14% coupon bond 
D)  5-year, 10% coupon bond 
E)  Cannot tell from the information given 
A)  5-year, 0% coupon bond 
B)  5-year, 12% coupon bond 
C)  5 year, 14% coupon bond 
D)  5-year, 10% coupon bond 
E)  Cannot tell from the information given

Question 10

Immunization is not a strictly passive strategy because

Accepted Answer

A)  it requires choosing an asset portfolio that matches an index. 
B)  there is likely to be a gap between the values of assets and liabilities in most portfolios. 
C)  it requires frequent rebalancing as maturities and interest rates change. 
D)  durations of assets and liabilities fall at the same rate. 
E)  None of the options are correct. 
A)  it requires choosing an asset portfolio that matches an index. 
B)  there is likely to be a gap between the values of assets and liabilities in most portfolios. 
C)  it requires frequent rebalancing as maturities and interest rates change. 
D)  durations of assets and liabilities fall at the same rate. 
E)  None of the options are correct.

Question 11

Ceteris paribus, the duration of a bond is positively correlated with the bond's

Accepted Answer

A)  time to maturity. 
B)  coupon rate. 
C)  yield to maturity. 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  time to maturity. 
B)  coupon rate. 
C)  yield to maturity. 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 12

Consider a bond selling at par with modified duration of 12 years and convexity of 265. A 1% decrease in yield would cause the price to increase by 12%, according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule?

Accepted Answer

A)  21.2% 
B)  25.4% 
C)  17.0% 
D)  13.3% 
A)  21.2% 
B)  25.4% 
C)  17.0% 
D)  13.3%

Question 13

Which of the following researchers have contributed significantly to bond portfolio management theory?I) Sidney HomerII) Harry MarkowitzIII) Burton MalkielIV) Martin LiebowitzV) Frederick Macaulay

Accepted Answer

A)  I and II 
B)  III and V 
C)  III, IV, and V 
D)  I, III, IV, and V 
E)  I, II, III, IV, and V 
A)  I and II 
B)  III and V 
C)  III, IV, and V 
D)  I, III, IV, and V 
E)  I, II, III, IV, and V

Question 14

Which of the following two bonds is more price sensitive to changes in interest rates? 1) A par-value bond, D, with a 2 year to maturity and an 8% coupon rate.
2) A zero-coupon bond, E, with a 2 year to maturity and an 8% yield to maturity.

Accepted Answer

A)  Bond D because of the higher yield to maturity 
B)  Bond E because of the longer duration 
C)  Bond D because of the longer time to maturity 
D)  Both have the same sensitivity because both have the same yield to maturity. 
A)  Bond D because of the higher yield to maturity 
B)  Bond E because of the longer duration 
C)  Bond D because of the longer time to maturity 
D)  Both have the same sensitivity because both have the same yield to maturity.

Question 15

Par-value bond XYZ has a modified duration of 6. Which one of the following statements regarding the bond is true?

Accepted Answer

A)  If the market yield increases by 1%, the bond's price will decrease by $60. 
B)  If the market yield increases by 1%, the bond's price will increase by $50. 
C)  If the market yield increases by 1%, the bond's price will decrease by $50. 
D)  If the market yield increases by 1%, the bond's price will increase by $60. 
A)  If the market yield increases by 1%, the bond's price will decrease by $60. 
B)  If the market yield increases by 1%, the bond's price will increase by $50. 
C)  If the market yield increases by 1%, the bond's price will decrease by $50. 
D)  If the market yield increases by 1%, the bond's price will increase by $60.

Question 16

According to the duration concept,

Accepted Answer

A)  only coupon payments matter. 
B)  only maturity value matters. 
C)  the coupon payments made prior to maturity make the effective maturity of the bond greater than its actual time to maturity. 
D)  the coupon payments made prior to maturity make the effective maturity of the bond less than its actual time to maturity. 
E)  coupon rates don't matter. 
A)  only coupon payments matter. 
B)  only maturity value matters. 
C)  the coupon payments made prior to maturity make the effective maturity of the bond greater than its actual time to maturity. 
D)  the coupon payments made prior to maturity make the effective maturity of the bond less than its actual time to maturity. 
E)  coupon rates don't matter.

Question 17

Which of the following are true about the interest-rate sensitivity of bonds?I) Bond prices and yields are inversely related.II) Prices of long-term bonds tend to be more sensitive to interest-rate changes than prices of short-term bonds.III) Interest-rate risk is correlated with the bond's coupon rate.IV) The sensitivity of a bond's price to a change in its yield to maturity is inversely related to the yield to maturity at which the bond is currently selling.

Accepted Answer

A)  I and II 
B)  I and III 
C)  I, II, and IV 
D)  II, III, and IV 
E)  I, II, III, and IV 
A)  I and II 
B)  I and III 
C)  I, II, and IV 
D)  II, III, and IV 
E)  I, II, III, and IV

Question 18

Consider a bond selling at par with modified duration of 22 years and convexity of 415. A 2% decrease in yield would cause the price to increase by 44% according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule?

Accepted Answer

A)  21.2% 
B)  25.4% 
C)  17.0% 
D)  52.3% 
A)  21.2% 
B)  25.4% 
C)  17.0% 
D)  52.3%

Question 19

Which one of the following statements is true concerning the duration of a perpetuity?

Accepted Answer

A)  The duration of a 15% yield perpetuity that pays $100 annually is longer than that of a 15% yield perpetuity that pays $200 annually. 
B)  The duration of a 15% yield perpetuity that pays $100 annually is shorter than that of a 15% yield perpetuity that pays $200 annually. 
C)  The duration of a 15% yield perpetuity that pays $100 annually is equal to that of a 15% yield perpetuity that pays $200 annually. 
D)  The duration of a perpetuity cannot be calculated. 
A)  The duration of a 15% yield perpetuity that pays $100 annually is longer than that of a 15% yield perpetuity that pays $200 annually. 
B)  The duration of a 15% yield perpetuity that pays $100 annually is shorter than that of a 15% yield perpetuity that pays $200 annually. 
C)  The duration of a 15% yield perpetuity that pays $100 annually is equal to that of a 15% yield perpetuity that pays $200 annually. 
D)  The duration of a perpetuity cannot be calculated.

Question 20

The basic purpose of immunization is to

Accepted Answer

A)  eliminate default risk. 
B)  produce a zero net-interest-rate risk. 
C)  offset price and reinvestment risk. 
D)  eliminate default risk and produce a zero net-interest-rate risk. 
E)  produce a zero net-interest-rate risk and offset price and reinvestment risk. 
A)  eliminate default risk. 
B)  produce a zero net-interest-rate risk. 
C)  offset price and reinvestment risk. 
D)  eliminate default risk and produce a zero net-interest-rate risk. 
E)  produce a zero net-interest-rate risk and offset price and reinvestment risk.

Exam 16: Managing Bond Portfolios

The duration of a coupon bond

Ceteris paribus, the duration of a bond is negatively correlated with the bond's

An 8%, 15-year bond has a yield to maturity of 10% and duration of 8.05 years. If the market yield changes by 25 basis points, how much change will there be in the bond's price?

The duration of a 20-year zero-coupon bond is

Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bond's

Consider a six yearannual bond paying a 7% coupon, with a yield to maturity of 5.0%. What is the duration of the bond?

Which of the following is not true?

The duration of a par-valueannual bond with a coupon rate of 8.7% and a remaining time to maturity of 6 years is

Holding other factors constant, which one of the following bonds has the smallest price volatility?

Immunization is not a strictly passive strategy because

Ceteris paribus, the duration of a bond is positively correlated with the bond's

Consider a bond selling at par with modified duration of 12 years and convexity of 265. A 1% decrease in yield would cause the price to increase by 12%, according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule?

Which of the following researchers have contributed significantly to bond portfolio management theory?I) Sidney HomerII) Harry MarkowitzIII) Burton MalkielIV) Martin LiebowitzV) Frederick Macaulay

Which of the following two bonds is more price sensitive to changes in interest rates? 1) A par-value bond, D, with a 2 year to maturity and an 8% coupon rate. 2) A zero-coupon bond, E, with a 2 year to maturity and an 8% yield to maturity.

Par-value bond XYZ has a modified duration of 6. Which one of the following statements regarding the bond is true?

According to the duration concept,

Consider a bond selling at par with modified duration of 22 years and convexity of 415. A 2% decrease in yield would cause the price to increase by 44% according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule?

Which one of the following statements is true concerning the duration of a perpetuity?

The basic purpose of immunization is to

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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