Question 1

Cash flow matching on a multiperiod basis is referred to as

Accepted Answer

A) immunization. 
B) contingent immunization. 
C) dedication. 
D) duration matching. 
E) rebalancing. 
A) immunization. 
B) contingent immunization. 
C) dedication. 
D) duration matching. 
E) rebalancing.

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

Question 3

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 4

Consider a bond selling at par with modified duration of 22-years and convexity of 415.A 2 percent 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% 
E) none of the above. 
A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 52.3% 
E) none of the above.

Question 5

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

Question 6

The interest-rate risk of a bond is

Accepted Answer

A) the risk related to the possibility of bankruptcy of the bond's issuer. 
B) the risk that arises from the uncertainty of the bond's return caused by changes in interest rates. 
C) the unsystematic risk caused by factors unique in the bond. 
D) A and B above. 
E) A,B,and C above. 
A) the risk related to the possibility of bankruptcy of the bond's issuer. 
B) the risk that arises from the uncertainty of the bond's return caused by changes in interest rates. 
C) the unsystematic risk caused by factors unique in the bond. 
D) A and B above. 
E) A,B,and C above.

Question 7

Which of the following are false 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 
B) III 
C) I, II, and IV 
D) II, III, and IV 
E) I,II,III,and IV 
A) I 
B) III 
C) I, II, and IV 
D) II, III, and IV 
E) I,II,III,and IV

Question 8

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?

Accepted Answer

A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 13.3% 
E) none of the above. 
A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 13.3% 
E) none of the above.

Question 9

The duration of a par value bond with a coupon rate of 7% and a remaining time to maturity of 3 years is

Accepted Answer

A) 3 years. 
B) 2.71years. 
C) 2.81 years. 
D) 2.91 years. 
E) none of the above. 
A) 3 years. 
B) 2.71years. 
C) 2.81 years. 
D) 2.91 years. 
E) none of the above.

Question 10

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

Accepted Answer

A) The duration of 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 15% yield perpetuity that pays $200 annually. 
D) The duration of a perpetuity cannot be calculated. 
E) None of the above. 
A) The duration of 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 15% yield perpetuity that pays $200 annually. 
D) The duration of a perpetuity cannot be calculated. 
E) None of the above.

Question 11

The duration of a par value bond with a coupon rate of 8% 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. 
E) none of the above. 
A) 5 years. 
B) 5.4 years. 
C) 4.17 years. 
D) 4.31 years. 
E) none of the above.

Question 12

Consider a bond selling at par with modified duration of 10.6 years and convexity of 210.A 2 percent 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% 
E) none of the above. 
A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 10.6% 
E) none of the above.

Question 13

Identify the bond that has the longest duration (no calculations necessary).

Accepted Answer

A) 20-year maturity with an 8% coupon. 
B) 20-year maturity with a 12% coupon. 
C) 20-year maturity with a 0% coupon. 
D) 10-year maturity with a 15% coupon. 
E) 12-year maturity with a 12% coupon. 
A) 20-year maturity with an 8% coupon. 
B) 20-year maturity with a 12% coupon. 
C) 20-year maturity with a 0% coupon. 
D) 10-year maturity with a 15% coupon. 
E) 12-year maturity with a 12% coupon.

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 above. 
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 above.

Question 15

Discuss rate anticipation swaps as a bond portfolio management strategy.

Accepted Answer

A rate anticipation swap is an active bo

Question 16

Which of the following bonds has the longest duration?

Accepted Answer

A) A 12-year maturity, 0% coupon bond. 
B) A 12-year maturity, 8% coupon bond. 
C) A 4-year maturity, 8% coupon bond. 
D) A 4-year maturity, 0% coupon bond. 
E) Cannot tell from the information given. 
A) A 12-year maturity, 0% coupon bond. 
B) A 12-year maturity, 8% coupon bond. 
C) A 4-year maturity, 8% coupon bond. 
D) A 4-year maturity, 0% coupon bond. 
E) Cannot tell from the information given.

Question 17

The "modified duration" used by practitioners is equal to ______ divided by (one plus the bond's yield to maturity).

Accepted Answer

A) current yield 
B) the Macaulay duration 
C) yield to call 
D) yield to maturity 
E) none of the above. 
A) current yield 
B) the Macaulay duration 
C) yield to call 
D) yield to maturity 
E) none of the above.

Question 18

Duration measures

Accepted Answer

A) weighted average time until a bond's half-life. 
B) weighted average time until cash flow payment. 
C) the time required to make excessive profit from the investment. 
D) A and C. 
E) B and C. 
A) weighted average time until a bond's half-life. 
B) weighted average time until cash flow payment. 
C) the time required to make excessive profit from the investment. 
D) A and C. 
E) B and C.

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 duration of a 5-year zero-coupon bond is

Accepted Answer

A) smaller than 5. 
B) larger than 5. 
C) equal to 5. 
D) equal to that of a 5-year 10% coupon bond. 
E) none of the above. 
A) smaller than 5. 
B) larger than 5. 
C) equal to 5. 
D) equal to that of a 5-year 10% coupon bond. 
E) none of the above.

Exam 16: Managing Bond Portfolios

Cash flow matching on a multiperiod basis is referred to as

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

Consider a bond selling at par with modified duration of 22-years and convexity of 415.A 2 percent 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?

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

The interest-rate risk of a bond is

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?

The duration of a par value bond with a coupon rate of 7% and a remaining time to maturity of 3 years is

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

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

Consider a bond selling at par with modified duration of 10.6 years and convexity of 210.A 2 percent 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?

Identify the bond that has the longest duration (no calculations necessary).

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

Discuss rate anticipation swaps as a bond portfolio management strategy.

Which of the following bonds has the longest duration?

The "modified duration" used by practitioners is equal to ______ divided by (one plus the bond's yield to maturity).

Duration measures

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 duration of a 5-year zero-coupon bond is

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

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

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters