Exam 14: Financial Statement Analysis

Consider a bond selling at par with modified duration of 12 years and convexity of 265.A 1 percent 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 two bonds is more price sensitive to changes in interest rates? 1)A par value bond,A,with a 12-year-to-maturity and a 12% coupon rate. 2)A zero-coupon bond,B,with a 12-year-to-maturity and a 12% yield-to-maturity.

The two components of interest-rate risk are

Indexing of bond portfolios is difficult because

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

Which one of the following is a correct statement concerning duration?

Two bonds are selling at par value and each has 17 years to maturity.The first bond has a coupon rate of 6% and the second bond has a coupon rate of 13%.Which of the following is most false about the durations of these bonds?

The duration of a perpetuity with a yield of 8% is

Duration is important in bond portfolio management because I.it can be used in immunization strategies. II.it provides a gauge of the effective average maturity of the portfolio. III.it is related to the interest rate sensitivity of the portfolio. IV.it is a good predictor of interest rate changes.

Which of the following two bonds is more price sensitive to changes in interest rates? 1)A par value bond,X,with a 5-year-to-maturity and a 10% coupon rate. 2)A zero-coupon bond,Y,with a 5-year-to-maturity and a 10% yield-to-maturity.

Immunization is not a strictly passive strategy because

Some of the problems with immunization are

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 directly related to 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.

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

An 8%,30-year corporate bond was recently being priced to yield 10%.The Macaulay duration for the bond is 10.20 years.Given this information,the bond's modified duration would be

Duration

Which of the following is not true?

Which of the following bonds has the longest duration?

Discuss duration.Include in your discussion what duration measures,how duration relates to maturity,what variables affect duration,and how duration is used as a portfolio management tool (include some of the problems associated with the use of duration as a portfolio management tool).

A seven-year par value bond has a coupon rate of 9% and a modified duration of