Question 1

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 higher. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) All of the options 
E) None of the options 
A) term to maturity is higher. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) All of the options 
E) None of the options A

Question 2

The duration of a bond normally increases with an increase in

Accepted Answer

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

Question 3

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 
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 B

Question 4

Which one of the following is an incorrect statement concerning duration

Accepted Answer

A) The higher the yield to maturity, the greater the duration. 
B) The higher the coupon, the shorter the duration. 
C) The difference in duration is small between two bonds with different coupons each maturing in more than 15 years. 
D) The duration is the same as term to maturity only in the case of zero-coupon bonds. 
E) All of the statements are correct. 
A) The higher the yield to maturity, the greater the duration. 
B) The higher the coupon, the shorter the duration. 
C) The difference in duration is small between two bonds with different coupons each maturing in more than 15 years. 
D) The duration is the same as term to maturity only in the case of zero-coupon bonds. 
E) All of the statements are correct.

Question 5

A 6%, 30-year corporate bond was recently being priced to yield 8%.The Macaulay duration for the bond is 8.4 years.Given this information, the bond's modified duration would be

Accepted Answer

A) 8.05. 
B) 9.44. 
C) 9.27. 
D) 7.78. 
A) 8.05. 
B) 9.44. 
C) 9.27. 
D) 7.78.

Question 6

Which of the following bonds has the longest duration

Accepted Answer

A) An 8-year maturity, 0% coupon bond. 
B) An 8-year maturity, 5% coupon bond. 
C) A 10-year maturity, 5% coupon bond. 
D) A 10-year maturity, 0% coupon bond. 
E) Cannot tell from the information given 
A) An 8-year maturity, 0% coupon bond. 
B) An 8-year maturity, 5% coupon bond. 
C) A 10-year maturity, 5% coupon bond. 
D) A 10-year maturity, 0% coupon bond. 
E) Cannot tell from the information given

Question 7

Consider a bond selling at par with modified duration of 10.6 years and convexity of 210.A 2% decrease in yield would cause the price to increase by 21.2%, 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) 10.6% 
A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 10.6%

Question 8

Which of the following offers a bond index

Accepted Answer

A) Merrill Lynch 
B) Salomon 
C) Barclays Capital 
D) All of the options 
E) All but Merrill Lynch 
A) Merrill Lynch 
B) Salomon 
C) Barclays Capital 
D) All of the options 
E) All but Merrill Lynch

Question 9

An analyst who selects a particular holding period and predicts the yield curve at the end of that holding period is engaging in

Accepted Answer

A) a rate anticipation swap. 
B) immunization. 
C) horizon analysis. 
D) an intermarket spread swap. 
E) None of the options 
A) a rate anticipation swap. 
B) immunization. 
C) horizon analysis. 
D) an intermarket spread swap. 
E) None of the options

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 
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

Question 11

Given the time to maturity, the duration of a zero-coupon bond is higher when the discount rate is

Accepted Answer

A) higher. 
B) lower. 
C) equal to the risk-free rate. 
D) the bond's duration is independent of the discount rate. 
E) None of the options 
A) higher. 
B) lower. 
C) equal to the risk-free rate. 
D) the bond's duration is independent of the discount rate. 
E) None of the options

Question 12

Duration

Accepted Answer

A) assesses the time element of bonds in terms of both coupon and term to maturity. 
B) allows structuring a portfolio to avoid interest-rate risk. 
C) is a direct comparison between bond issues with different levels of risk. 
D) assesses the time element of bonds in terms of both coupon and term to maturity and allows structuring a portfolio to avoid interest-rate risk 
E) assesses the time element of bonds in terms of both coupon and term to maturity and is a direct comparison between bond issues with different levels of risk 
A) assesses the time element of bonds in terms of both coupon and term to maturity. 
B) allows structuring a portfolio to avoid interest-rate risk. 
C) is a direct comparison between bond issues with different levels of risk. 
D) assesses the time element of bonds in terms of both coupon and term to maturity and allows structuring a portfolio to avoid interest-rate risk 
E) assesses the time element of bonds in terms of both coupon and term to maturity and is a direct comparison between bond issues with different levels of risk

Question 13

Which of the following is true?

Accepted Answer

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

Question 14

The "modified duration" used by practitioners is equal to the Macaulay duration

Accepted Answer

A) times the change in interest rate. 
B) times (one plus the bond's yield to maturity). 
C) divided by (one minus the bond's yield to maturity). 
D) divided by (one plus the bond's yield to maturity). 
E) None of the options 
A) times the change in interest rate. 
B) times (one plus the bond's yield to maturity). 
C) divided by (one minus the bond's yield to maturity). 
D) divided by (one plus the bond's yield to maturity). 
E) None of the options

Question 15

The duration of a par value bond with a coupon rate of 8% (paid annually) and a remaining time to maturity of 5 years is

Accepted Answer

A) 5 years. 
B) 5.4 years. 
C) 4.17 years. 
D) 4.31 years. 
A) 5 years. 
B) 5.4 years. 
C) 4.17 years. 
D) 4.31 years.

Question 16

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.

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 17

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

Accepted Answer

A) term to maturity is lower. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) term to maturity is lower and coupon rate is higher. 
E) All of the options 
A) term to maturity is lower. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) term to maturity is lower and coupon rate is higher. 
E) All of the options

Question 18

Which of the following researchers have contributed significantly to bond portfolio management theory
I. Sidney Homer
II. Harry Markowitz
III. Burton Malkiel
IV. Martin Liebowitz
V. 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 19

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 true about the durations of these bonds

Accepted Answer

A) The duration of the higher-coupon bond will be higher. 
B) The duration of the lower-coupon bond will be higher. 
C) The duration of the higher-coupon bond will equal the duration of the lower-coupon bond. 
D) There is no consistent statement that can be made about the durations of the bonds. 
E) The bond's durations cannot be determined without knowing the prices of the bonds. 
A) The duration of the higher-coupon bond will be higher. 
B) The duration of the lower-coupon bond will be higher. 
C) The duration of the higher-coupon bond will equal the duration of the lower-coupon bond. 
D) There is no consistent statement that can be made about the durations of the bonds. 
E) The bond's durations cannot be determined without knowing the prices of the bonds.

Question 20

The curvature of the price-yield curve for a given bond is referred to as the bond's

Accepted Answer

A) modified duration. 
B) immunization. 
C) sensitivity. 
D) convexity. 
E) tangency. 
A) modified duration. 
B) immunization. 
C) sensitivity. 
D) convexity. 
E) tangency.

Exam 16: Managing Bond Portfolios

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

The duration of a bond normally increases with an increase in

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

Which one of the following is an incorrect statement concerning duration

A 6%, 30-year corporate bond was recently being priced to yield 8%.The Macaulay duration for the bond is 8.4 years.Given this information, the bond's modified duration would be

Which of the following bonds has the longest duration

Consider a bond selling at par with modified duration of 10.6 years and convexity of 210.A 2% decrease in yield would cause the price to increase by 21.2%, according to the duration rule.What would be the percentage price change according to the duration-with-convexity rule

Which of the following offers a bond index

An analyst who selects a particular holding period and predicts the yield curve at the end of that holding period is engaging in

Immunization is not a strictly passive strategy because

Given the time to maturity, the duration of a zero-coupon bond is higher when the discount rate is

Duration

Which of the following is true?

The "modified duration" used by practitioners is equal to the Macaulay duration

The duration of a par value bond with a coupon rate of 8% (paid annually) and a remaining time to maturity of 5 years is

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

Which of the following researchers have contributed significantly to bond portfolio management theory I. Sidney Homer II. Harry Markowitz III. Burton Malkiel IV. Martin Liebowitz V. Frederick Macaulay

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 true about the durations of these bonds

The curvature of the price-yield curve for a given bond is referred to as the bond's

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