Question 1

The duration rule always ________ the value of a bond following a change in its yield.

Accepted Answer

A)  under-estimates 
B)  provides an unbiased estimate of 
C)  over-estimates 
D)  The estimated price may be biased either upward or downward, depending on whether the bond is trading at a discount or a premium 
A)  under-estimates 
B)  provides an unbiased estimate of 
C)  over-estimates 
D)  The estimated price may be biased either upward or downward, depending on whether the bond is trading at a discount or a premium

Question 2

Compute the modified duration of a 9% coupon,3-year corporate bond with a yield to maturity of 12%.

Accepted Answer

A)  2.45 
B)  2.75 
C)  2.88 
D)  3.00 
A)  2.45 
B)  2.75 
C)  2.88 
D)  3.00

Question 3

The duration of a 5-year zero coupon bond is ____ years.

Accepted Answer

A)  4.5 
B)  5.0 
C)  5.5 
D)  3.5 
A)  4.5 
B)  5.0 
C)  5.5 
D)  3.5

Question 4

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%.
-The modified duration of this bond is ______ years.

Accepted Answer

A)  4.00 
B)  3.56 
C)  3.36 
D)  3.05 
A)  4.00 
B)  3.56 
C)  3.36 
D)  3.05

Question 5

A bond portfolio manager notices a hump in the yield curve at the five year point.How might a bond manager take advantage of this event?

Accepted Answer

A)  Buy the 5 year bonds and short the surrounding maturity bonds 
B)  Buy the 5 year bonds and buy the surrounding maturity bonds 
C)  Short the 5 year bonds and short the surrounding maturity bonds 
D)  Short the 5 year bonds and buy the surrounding maturity bonds 
A)  Buy the 5 year bonds and short the surrounding maturity bonds 
B)  Buy the 5 year bonds and buy the surrounding maturity bonds 
C)  Short the 5 year bonds and short the surrounding maturity bonds 
D)  Short the 5 year bonds and buy the surrounding maturity bonds

Question 6

Where Y = yield to maturity,the duration of a perpetuity would be _________.

Accepted Answer

A)  Y 
B)  Y/(1 + Y) 
C)  1/Y 
D)  (1 + Y)/Y 
A)  Y 
B)  Y/(1 + Y) 
C)  1/Y 
D)  (1 + Y)/Y

Question 7

Which one of the following statements correctly describes the weights used in the Macaulay duration calculation? The weight in year t is equal to ____________.

Accepted Answer

A)  the dollar amount of the investment received in year t 
B)  the percentage of the future value of the investment received in year t 
C)  the present value of the dollar amount of the investment received in year t 
D)  the percentage of the total present value of the investment received in year t 
A)  the dollar amount of the investment received in year t 
B)  the percentage of the future value of the investment received in year t 
C)  the present value of the dollar amount of the investment received in year t 
D)  the percentage of the total present value of the investment received in year t

Question 8

Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive.
I.8% coupon,noncallable 20 year maturity,par bond
II.9% coupon,currently callable 20 year maturity,premium bond
III.Zero coupon,30 year maturity bond

Accepted Answer

A)  I, II, III 
B)  II, III, I 
C)  III, I, II 
D)  III, II, I 
A)  I, II, III 
B)  II, III, I 
C)  III, I, II 
D)  III, II, I

Question 9

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%.
-The duration of this bond is _______ years.

Accepted Answer

A)  2.44 
B)  3.23 
C)  3.56 
D)  4.10 
A)  2.44 
B)  3.23 
C)  3.56 
D)  4.10

Question 10

A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000.Its yield to maturity is 10%.Over the upcoming year,you expect interest rates to decline and that the yield to maturity on this bond will only be 8% a year from now.Using horizon analysis,the return you expect to earn by holding this bond over the upcoming year is _________.

Accepted Answer

A)  10.0% 
B)  12.0% 
C)  21.6% 
D)  29.6% 
A)  10.0% 
B)  12.0% 
C)  21.6% 
D)  29.6%

Question 11

A fixed income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 5% per year over the next 4 years.The portfolio is currently worth $10 million.One year later interest rates are at 6%.What is the portfolio value trigger point at this time that would require him to immunize the portfolio?

Accepted Answer

A)  $12,155,063 
B)  $10,205,625 
C)  $9,627,948 
D)  $10,500,000 
A)  $12,155,063 
B)  $10,205,625 
C)  $9,627,948 
D)  $10,500,000

Question 12

Duration is a concept that is useful in assessing a bond's _________.

Accepted Answer

A)  credit risk 
B)  liquidity risk 
C)  price volatility 
D)  convexity risk 
A)  credit risk 
B)  liquidity risk 
C)  price volatility 
D)  convexity risk

Question 13

The duration of a perpetuity varies _______ with interest rates.

Accepted Answer

A)  directly 
B)  inversely 
C)  convexly 
D)  randomly 
A)  directly 
B)  inversely 
C)  convexly 
D)  randomly

Question 14

A bank has an average duration of its liabilities equal to 2 years.The bank's average duration of its assets is 3.5 years.The bank's market value of equity is at risk if _______________________.

Accepted Answer

A)  interest rates fall 
B)  credit spreads fall 
C)  interest rates rise 
D)  the price of all fixed income securities rises 
A)  interest rates fall 
B)  credit spreads fall 
C)  interest rates rise 
D)  the price of all fixed income securities rises

Question 15

All other things equal,a bond's duration is _________.

Accepted Answer

A)  higher when the yield to maturity is higher 
B)  lower when the yield to maturity is higher 
C)  the same at all yield rates 
D)  indeterminable when the yield to maturity is high 
A)  higher when the yield to maturity is higher 
B)  lower when the yield to maturity is higher 
C)  the same at all yield rates 
D)  indeterminable when the yield to maturity is high

Question 16

A perpetuity pays $100 each and every year forever.The duration of this perpetuity will be __________ if its yield is 9%.

Accepted Answer

A)  7 
B)  9 
C)  9.39 
D)  12.11 
A)  7 
B)  9 
C)  9.39 
D)  12.11

Question 17

A portfolio manager believes interest rates will drop and decides to sell short duration bonds and buy long duration bonds.This is an example of __________ swap.

Accepted Answer

A)  a pure yield pick up 
B)  a rate anticipation 
C)  a substitution 
D)  an inter-market spread 
A)  a pure yield pick up 
B)  a rate anticipation 
C)  a substitution 
D)  an inter-market spread

Question 18

The exchange of one bond for a bond with similar attributes but more attractively priced is called ______________.

Accepted Answer

A)  a substitution swap 
B)  an intermarket spread swap 
C)  rate anticipation swap 
D)  pure yield pickup swap 
A)  a substitution swap 
B)  an intermarket spread swap 
C)  rate anticipation swap 
D)  pure yield pickup swap

Question 19

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 4 years.Your realized rate of return will be larger than the promised yield on the bond if ___________________.

Accepted Answer

A)  interest rates increase 
B)  interest rates stay the same 
C)  interest rates fall 
D)  one can't tell with the information given 
A)  interest rates increase 
B)  interest rates stay the same 
C)  interest rates fall 
D)  one can't tell with the information given

Question 20

A bond's price volatility _________ at a/an _________ rate as maturity increases.

Accepted Answer

A)  increases; increasing 
B)  increases; decreasing 
C)  decreases; increasing 
D)  decreases; decreasing 
A)  increases; increasing 
B)  increases; decreasing 
C)  decreases; increasing 
D)  decreases; decreasing

The duration rule always ________ the value of a bond following a change in its yield.

Compute the modified duration of a 9% coupon,3-year corporate bond with a yield to maturity of 12%.

The duration of a 5-year zero coupon bond is ____ years.

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%. -The modified duration of this bond is ______ years.

A bond portfolio manager notices a hump in the yield curve at the five year point.How might a bond manager take advantage of this event?

Where Y = yield to maturity,the duration of a perpetuity would be _________.

Which one of the following statements correctly describes the weights used in the Macaulay duration calculation? The weight in year t is equal to ____________.

Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive. I.8% coupon,noncallable 20 year maturity,par bond II.9% coupon,currently callable 20 year maturity,premium bond III.Zero coupon,30 year maturity bond

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%. -The duration of this bond is _______ years.

Duration is a concept that is useful in assessing a bond's _________.

The duration of a perpetuity varies _______ with interest rates.

A bank has an average duration of its liabilities equal to 2 years.The bank's average duration of its assets is 3.5 years.The bank's market value of equity is at risk if _______________________.

All other things equal,a bond's duration is _________.

A perpetuity pays $100 each and every year forever.The duration of this perpetuity will be __________ if its yield is 9%.

A portfolio manager believes interest rates will drop and decides to sell short duration bonds and buy long duration bonds.This is an example of __________ swap.

The exchange of one bond for a bond with similar attributes but more attractively priced is called ______________.

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 4 years.Your realized rate of return will be larger than the promised yield on the bond if ___________________.

A bond's price volatility _ at a/an _ rate as maturity increases.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Exam 11: Managing Bond Portfolios

The duration rule always ________ the value of a bond following a change in its yield.

Compute the modified duration of a 9% coupon,3-year corporate bond with a yield to maturity of 12%.

The duration of a 5-year zero coupon bond is ____ years.

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%. -The modified duration of this bond is ______ years.

A bond portfolio manager notices a hump in the yield curve at the five year point.How might a bond manager take advantage of this event?

Where Y = yield to maturity,the duration of a perpetuity would be _________.

Which one of the following statements correctly describes the weights used in the Macaulay duration calculation? The weight in year t is equal to ____________.

Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive. I.8% coupon,noncallable 20 year maturity,par bond II.9% coupon,currently callable 20 year maturity,premium bond III.Zero coupon,30 year maturity bond

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%. -The duration of this bond is _______ years.

Duration is a concept that is useful in assessing a bond's _________.

The duration of a perpetuity varies _______ with interest rates.

A bank has an average duration of its liabilities equal to 2 years.The bank's average duration of its assets is 3.5 years.The bank's market value of equity is at risk if _______________________.

All other things equal,a bond's duration is _________.

A perpetuity pays $100 each and every year forever.The duration of this perpetuity will be __________ if its yield is 9%.

A portfolio manager believes interest rates will drop and decides to sell short duration bonds and buy long duration bonds.This is an example of __________ swap.

The exchange of one bond for a bond with similar attributes but more attractively priced is called ______________.

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 4 years.Your realized rate of return will be larger than the promised yield on the bond if ___________________.

A bond's price volatility _________ at a/an _________ rate as maturity increases.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

A bond's price volatility _ at a/an _ rate as maturity increases.