Exam 11: Managing Bond Portfolios

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in 4 years. Its yield to maturity is currently 6%. The duration of this bond is ________ years.

If an investment returns a higher percentage of your money back sooner, it will ________.

When bonds sell above par, what is the relationship of price sensitivity to rising interest rates?

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: If the bond's coupon was smaller than 10%, the modified duration would be ________ compared to the original modified duration.

The historical yield spread between the AA bond and the AAA bond has been 25 basis points. Currently the spread is only 9 basis points. If you believe the spread will soon return to its historical levels, you should ________.

The duration of a perpetuity varies ________ with interest rates.

Which of the following is not a type of bond swap used in active portfolio management?

Immunization of coupon-paying bonds does not imply that the portfolio manager is inactive because: I. The portfolio must be rebalanced every time interest rates change. II. The portfolio must be rebalanced over time even if interest rates don't change. III. Convexity implies duration-based immunization strategies don't work.

The duration rule always ________ the value of a bond following a change in its yield.

Which of the following statements is false?

A bond currently has a price of $1,050. The yield on the bond is 6%. If the yield increases 25 basis points, the price of the bond will go down to $1,030. The duration of this bond is ________ years.

The exchange of one bond for a bond that has similar attributes but is more attractively priced is called ________.

Duration facilitates the comparison of bonds with differing ________.

Rank the interest sensitivity of the following from the most sensitive to an interest rate change to the least sensitive: I. 8% coupon, noncallable 20-year maturity par bond II. 9% coupon, currently callable 20-year maturity premium bond III. Zero-coupon 30-year maturity bond

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: If the yield to maturity decreases to 8.045%, the expected percentage change in the price of the bond using modified duration would be ________.

A perpetuity pays $100 each and every year forever. The duration of this perpetuity will be ________ if its yield is 9%.

The duration of a 5-year zero-coupon bond is ________ years.

Duration measures

An 8%, 30-year bond has a yield to maturity of 10% and a modified duration of 8 years. If the market yield drops by 15 basis points, there will be a ________ in the bond's price.

Which one of the following statements correctly describes the weights used in the Macaulay duration calculation? The weight in year t is equal to ________.