Exam 11: Managing Bond Portfolios

If you choose a zero coupon bond with a maturity that matches your investment horizon which of the following statements is/are correct? I.You will have no interest rate risk on this bond. II.Absent default,you can be sure you will earn the promised yield rate. III.The duration of your bond is less than the time to your investment horizon.

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 6 years and continue to match your investment horizon and duration throughout your holding period.Your realized rate of return will be the same as the promised yield on the bond if I.interest rates increase II.interest rates stay the same III.interest rates fall

An 8%,30-year bond has a yield-to-maturity of 10% and a modified duration of 8.0 years.If the market yield drops by 15 basis points,there will be a __________ in the bond's price.

A 20 year maturity corporate bond has a 6.5% coupon rate (the coupons are paid annually).The bond currently sells for $925.50.A bond market analyst forecasts that in five years yield rates on these bonds will be at 7.0%.You believe that you will be able to reinvest the coupons earned over the next five years at a 6% rate of return.What is your expected annual compound rate of return if you plan on selling the bond in five years?

All other things equal,which of the following has the longest duration?

Target date immunization would primarily be of interest to _________.

In the context of a bond portfolio,price risk and reinvestment rate risk exactly cancel out at a time horizon equal to ____.

A bond currently has a price of $1,050.The yield on the bond is 6.00%.If the yield increases 25 basis points,the price of the bond will go down to $1,030.The duration of this bond is ____ years.

Convexity of a bond is ___________.

When interest rates increase,the duration of a 20-year bond selling at a premium _________.

Convexity implies that duration predictions _______. I.underestimate the % increase in bond price when the yield falls II.underestimate the % decrease in bond price when the yield rises III.overestimates the % increase in bond price when the yield falls IV.overestimates the % decrease in bond price when the yield rises

The duration is independent of the coupon rate only for which one of the following?

If an investment returns a higher percentage of your money back sooner it will ______.

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: -The modified duration for the Steel Pier bond is ______.

Which of the following is not a type of bond swap used in active portfolio management?

A bond has a maturity of 12 years,a duration of 9.5 years at a promised yield rate of 8%.What is the bond's modified duration?

Banks and other financial institutions can best manage interest rate risk by _____________.

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: -If the maturity of the bond was less than 10 years,the modified duration would be _____ compared to the original modified duration.

An investor who expects declining interest rates would maximize their capital gain by purchasing a bond that has a ___ coupon and a ___ term to maturity.

A portfolio manager sells treasury bonds and buys corporate bonds because the spread between corporate and Treasury bond yields is higher than its historical average.This is an example of __________ swap.