Question 1

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

Question 2

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.

Accepted Answer

A) Bond X because of the higher yield to maturity. 
B) Bond X because of the longer time to maturity. 
C) Bond Y because of the longer duration. 
D) Both have the same sensitivity because both have the same yield to maturity. 
E) None of the above 
A) Bond X because of the higher yield to maturity. 
B) Bond X because of the longer time to maturity. 
C) Bond Y because of the longer duration. 
D) Both have the same sensitivity because both have the same yield to maturity. 
E) None of the above C

Question 3

The duration of a par value bond with a coupon rate of 6.5% and a remaining time to maturity of 4 years is

Accepted Answer

A) 3.65 years. 
B) 3.45 years. 
C) 3.85 years. 
D) 4.00 years. 
E) none of the above. 
A) 3.65 years. 
B) 3.45 years. 
C) 3.85 years. 
D) 4.00 years. 
E) none of the above. A

Question 4

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

Question 5

Par value bond F has a modified duration of 9.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 $90. 
B) If the market yield increases by 1% the bond's price will increase by $90. 
C) If the market yield increases by 1% the bond's price will decrease by $60. 
D) If the market yield decreases by 1% the bond's price will increase by $60. 
E) None of the above. 
A) If the market yield increases by 1% the bond's price will decrease by $90. 
B) If the market yield increases by 1% the bond's price will increase by $90. 
C) If the market yield increases by 1% the bond's price will decrease by $60. 
D) If the market yield decreases by 1% the bond's price will increase by $60. 
E) None of the above.

Question 6

A 9%,16-year bond has a yield to maturity of 11% and duration of 9.25 years.If the market yield changes by 32 basis points,how much change will there be in the bond's price?

Accepted Answer

A) 1.85% 
B) 2.01% 
C) 2.67% 
D) 6.44% 
E) none of the above 
A) 1.85% 
B) 2.01% 
C) 2.67% 
D) 6.44% 
E) none of the above

Question 7

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 
E) none of the above 
A) 8.05 
B) 9.44 
C) 9.27 
D) 7.78 
E) none of the above

Question 8

The duration of a perpetuity with a yield of 10% is

Accepted Answer

A) 13.50 years. 
B) 11 years. 
C) 6.66 years. 
D) cannot be determined. 
E) none of the above. 
A) 13.50 years. 
B) 11 years. 
C) 6.66 years. 
D) cannot be determined. 
E) none of the above.

Question 9

The duration of a bond is a function of the bond's

Accepted Answer

A) coupon rate. 
B) yield to maturity. 
C) time to maturity. 
D) all of the above. 
E) none of the above. 
A) coupon rate. 
B) yield to maturity. 
C) time to maturity. 
D) all of the above. 
E) none of the above.

Question 10

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 above. 
E) none of the above. 
A) term-to-maturity is higher. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) all of the above. 
E) none of the above.

Question 11

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

Accepted Answer

A) 13.50 years. 
B) 12.11 years. 
C) 6.66 years. 
D) cannot be determined. 
E) none of the above. 
A) 13.50 years. 
B) 12.11 years. 
C) 6.66 years. 
D) cannot be determined. 
E) none of the above.

Question 12

The duration of a perpetuity with a yield of 6% is

Accepted Answer

A) 13.50 years. 
B) 12.11 years. 
C) 17.67 years. 
D) cannot be determined. 
E) none of the above. 
A) 13.50 years. 
B) 12.11 years. 
C) 17.67 years. 
D) cannot be determined. 
E) none of the above.

Question 13

Which one of the following par value 12% coupon bonds experiences a price change of $23 when the market yield changes by 50 basis points?

Accepted Answer

A) The bond with a duration of 6 years. 
B) The bond with a duration of 5 years. 
C) The bond with a duration of 2.7 years. 
D) The bond with a duration of 5.15 years. 
E) None of the above. 
A) The bond with a duration of 6 years. 
B) The bond with a duration of 5 years. 
C) The bond with a duration of 2.7 years. 
D) The bond with a duration of 5.15 years. 
E) None of the above.

Question 14

A substitution swap is an exchange of bonds undertaken to

Accepted Answer

A) change the credit risk of a portfolio. 
B) extend the duration of a portfolio. 
C) reduce the duration of a portfolio. 
D) profit from apparent mispricing between two bonds. 
E) adjust for differences in the yield spread. 
A) change the credit risk of a portfolio. 
B) extend the duration of a portfolio. 
C) reduce the duration of a portfolio. 
D) profit from apparent mispricing between two bonds. 
E) adjust for differences in the yield spread.

Question 15

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 above are true. 
E) none of the above 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 above are true. 
E) none of the above are true.

Question 16

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

Question 17

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________.

Accepted Answer

A) 8.05 
B) 9.44 
C) 9.27 
D) 11.22 
E) none of the above 
A) 8.05 
B) 9.44 
C) 9.27 
D) 11.22 
E) none of the above

Question 18

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

Accepted Answer

A) 20-year, 0% coupon bond 
B) 20-year, 6% coupon bond 
C) 20 year, 7% coupon bond 
D) 20-year, 9% coupon bond 
E) Cannot tell from the information given. 
A) 20-year, 0% coupon bond 
B) 20-year, 6% coupon bond 
C) 20 year, 7% coupon bond 
D) 20-year, 9% coupon bond 
E) Cannot tell from the information given.

Question 19

When interest rates decline,the duration of a 10-year bond selling at a premium

Accepted Answer

A) increases. 
B) decreases. 
C) remains the same. 
D) increases at first, then declines. 
E) decreases at first,then increases. 
A) increases. 
B) decreases. 
C) remains the same. 
D) increases at first, then declines. 
E) decreases at first,then increases.

Question 20

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. 
E) none of the above. 
A) equal to 20. 
B) larger than 20. 
C) smaller than 20. 
D) equal to that of a 20-year 10% coupon bond. 
E) none of the above.

Exam 16: Managing Bond Portfolios

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

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.

The duration of a par value bond with a coupon rate of 6.5% and a remaining time to maturity of 4 years is

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

Par value bond F has a modified duration of 9.Which one of the following statements regarding the bond is true?

A 9%,16-year bond has a yield to maturity of 11% and duration of 9.25 years.If the market yield changes by 32 basis points,how much change will there be in the bond's price?

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

The duration of a perpetuity with a yield of 10% is

The duration of a bond is a function of the bond's

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

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

The duration of a perpetuity with a yield of 6% is

Which one of the following par value 12% coupon bonds experiences a price change of $23 when the market yield changes by 50 basis points?

A substitution swap is an exchange of bonds undertaken to

The duration of a coupon bond

The basic purpose of immunization is to

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________.

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

When interest rates decline,the duration of a 10-year bond selling at a premium

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

The Investment Environment

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Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

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

Options Markets: Introduction

Option Valuation

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Futures, swaps, and Risk Management

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Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

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The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

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