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

Question 2

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. 
A)  equal to 20. 
B)  larger than 20. 
C)  smaller than 20. 
D)  equal to that of a 20-year 10% coupon bond.

Question 3

Which of the following bonds has the longest duration?

Accepted Answer

A)  A 15-year maturity, 0% coupon bond. 
B)  A 15-year maturity, 9% coupon bond. 
C)  A 20-year maturity, 9% coupon bond. 
D)  A 20-year maturity, 0% coupon bond. 
E)  Cannot tell from the information given 
A)  A 15-year maturity, 0% coupon bond. 
B)  A 15-year maturity, 9% coupon bond. 
C)  A 20-year maturity, 9% coupon bond. 
D)  A 20-year maturity, 0% coupon bond. 
E)  Cannot tell from the information given

Question 4

Some of the problems with immunization are

Accepted Answer

A)  duration assumes that the yield curve is flat. 
B)  duration assumes that if shifts in the yield curve occur, these shifts are parallel. 
C)  immunization is valid for one interest-rate change only. 
D)  durations and horizon dates change by the same amounts with the passage of time. 
E)  immunization is valid for one interest-rate change only, duration assumes that the yield curve is flat, and that if shifts in the yield curve occur, these shifts are parallel. 
A)  duration assumes that the yield curve is flat. 
B)  duration assumes that if shifts in the yield curve occur, these shifts are parallel. 
C)  immunization is valid for one interest-rate change only. 
D)  durations and horizon dates change by the same amounts with the passage of time. 
E)  immunization is valid for one interest-rate change only, duration assumes that the yield curve is flat, and that if shifts in the yield curve occur, these shifts are parallel.

Question 5

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.

Accepted Answer

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

Question 6

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 are correct. 
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 are correct.

Question 7

Consider a bond selling at par with modified duration of 22 years and convexity of 415. A 2% 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% 
A)  21.2% 
B)  25.4% 
C)  17.0% 
D)  52.3%

Question 8

An 8%, 15-year bond has a yield to maturity of 10% and duration of 8.05 years. If the market yield changes by 25 basis points, how much change will there be in the bond's price?

Accepted Answer

A)  1.83% 
B)  2.01% 
C)  3.27% 
D)  6.44% 
A)  1.83% 
B)  2.01% 
C)  3.27% 
D)  6.44%

Question 9

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

Question 10

Par-value bond XYZ has a modified duration of 6. 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 $60. 
B)  If the market yield increases by 1%, the bond's price will increase by $50. 
C)  If the market yield increases by 1%, the bond's price will decrease by $50. 
D)  If the market yield increases by 1%, the bond's price will increase by $60. 
A)  If the market yield increases by 1%, the bond's price will decrease by $60. 
B)  If the market yield increases by 1%, the bond's price will increase by $50. 
C)  If the market yield increases by 1%, the bond's price will decrease by $50. 
D)  If the market yield increases by 1%, the bond's price will increase by $60.

Question 11

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 12

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 13

A 7%, 14-year bond has a yield to maturity of 6% and duration of 7 years. If the market yield changes by 44 basis points, how much change will there be in the bond's price?

Accepted Answer

A)  1.85% 
B)  2.91% 
C)  3.27% 
D)  6.44% 
A)  1.85% 
B)  2.91% 
C)  3.27% 
D)  6.44%

Question 14

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 15

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)  2.71 years. 
C)  2.81 years. 
D)  2.91 years. 
A)  3 years. 
B)  2.71 years. 
C)  2.81 years. 
D)  2.91 years.

Exam 16: Managing Bond Portfolios

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

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

Which of the following bonds has the longest duration?

Some of the problems with immunization are

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.

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

Consider a bond selling at par with modified duration of 22 years and convexity of 415. A 2% 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 8%, 15-year bond has a yield to maturity of 10% and duration of 8.05 years. If the market yield changes by 25 basis points, how much change will there be in the bond's price?

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

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

Cash flow matching on a multiperiod basis is referred to as

Which of the following bonds has the longest duration?

A 7%, 14-year bond has a yield to maturity of 6% and duration of 7 years. If the market yield changes by 44 basis points, how much change will there be in the bond's price?

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

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

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