Question 1

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

Question 2

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.

Accepted Answer

A)  I and II 
B)  I and III 
C)  III and IV 
D)  I, II, and III 
E)  I, II, III, and IV 
A)  I and II 
B)  I and III 
C)  III and IV 
D)  I, II, and III 
E)  I, II, III, and IV

Question 3

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 correlated with 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 4

The duration of a 15-year zero-coupon bond is

Accepted Answer

A)  smaller than 15. 
B)  larger than 15. 
C)  equal to 15. 
D)  equal to that of a 15-year 10% coupon bond. 
E)  None of the options are correct. 
A)  smaller than 15. 
B)  larger than 15. 
C)  equal to 15. 
D)  equal to that of a 15-year 10% coupon bond. 
E)  None of the options are correct.

Question 5

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 correlated with 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 6

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 7

Interest-rate risk is important to

Accepted Answer

A)  active bond portfolio managers. 
B)  passive bond portfolio managers. 
C)  both active and passive bond portfolio managers. 
D)  neither active nor passive bond portfolio managers. 
E)  obsessive bond portfolio managers. 
A)  active bond portfolio managers. 
B)  passive bond portfolio managers. 
C)  both active and passive bond portfolio managers. 
D)  neither active nor passive bond portfolio managers. 
E)  obsessive bond portfolio managers.

Question 8

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

Accepted Answer

A)  5-year, 0% coupon bond 
B)  5-year, 12% coupon bond 
C)  5 year, 14% coupon bond 
D)  5-year, 10% coupon bond 
E)  Cannot tell from the information given 
A)  5-year, 0% coupon bond 
B)  5-year, 12% coupon bond 
C)  5 year, 14% coupon bond 
D)  5-year, 10% coupon bond 
E)  Cannot tell from the information given

Question 9

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

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 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 are correct. 
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 are correct.

Question 11

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 
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

Question 12

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 options are correct. 
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 options are correct.

Question 13

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

Accepted Answer

A)  7-year, 0% coupon bond 
B)  7-year, 12% coupon bond 
C)  7 year, 14% coupon bond 
D)  7-year, 10% coupon bond 
E)  Cannot tell from the information given 
A)  7-year, 0% coupon bond 
B)  7-year, 12% coupon bond 
C)  7 year, 14% coupon bond 
D)  7-year, 10% coupon bond 
E)  Cannot tell from the information given

Question 14

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

Accepted Answer

A)  7 years. 
B)  5.49 years. 
C)  5.03 years. 
D)  4.87 years. 
A)  7 years. 
B)  5.49 years. 
C)  5.03 years. 
D)  4.87 years.

Question 15

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 16

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 17

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

Question 18

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 19

The two components of interest-rate risk are

Accepted Answer

A)  price risk and default risk. 
B)  reinvestment risk and systematic risk. 
C)  call risk and price risk. 
D)  price risk and reinvestment risk. 
E)  None of the options are correct. 
A)  price risk and default risk. 
B)  reinvestment risk and systematic risk. 
C)  call risk and price risk. 
D)  price risk and reinvestment risk. 
E)  None of the options are correct.

Question 20

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

Exam 16: Managing Bond Portfolios

The basic purpose of immunization is to

The duration of a 15-year zero-coupon bond is

Duration

Interest-rate risk is important to

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

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

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

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?

The duration of a 5-year zero-coupon bond is

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

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

Which of the following bonds has the longest 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

The duration of a bond normally increases with an increase in

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

The two components of interest-rate risk are

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

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters