Question 1

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

Accepted Answer

A)  A 30 year bond with a 10% coupon 
B)  A 20 year bond with a 9% coupon 
C)  A 20 year bond with a 7% coupon 
D)  A 10 year zero coupon bond 
A)  A 30 year bond with a 10% coupon 
B)  A 20 year bond with a 9% coupon 
C)  A 20 year bond with a 7% coupon 
D)  A 10 year zero coupon bond

Question 2

Market economists all predict a rise in interest rates.An astute bond manager wishing to maximize her capital gain might employ which strategy?

Accepted Answer

A)  Switch from low duration to high duration bonds. 
B)  Switch from high duration to low duration bonds. 
C)  Switch from high grade to low grade bonds. 
D)  Switch from low coupon to high coupon bonds. 
A)  Switch from low duration to high duration bonds. 
B)  Switch from high duration to low duration bonds. 
C)  Switch from high grade to low grade bonds. 
D)  Switch from low coupon to high coupon bonds.

Question 3

You own a bond that has a duration of 6 years.Interest rates are currently 7% but you believe the Fed is about to increase interest rates by 25 basis points.Your predicted price change on this bond is ________.

Accepted Answer

A)  +1.40% 
B)  -1.40% 
C)  -2.51% 
D)  +2.51% 
A)  +1.40% 
B)  -1.40% 
C)  -2.51% 
D)  +2.51%

Question 4

______________ is an important characteristic of the relationship between bond prices and yields.

Accepted Answer

A)  Convexity 
B)  Concavity 
C)  Complexity 
D)  Linearity 
A)  Convexity 
B)  Concavity 
C)  Complexity 
D)  Linearity

Question 5

You have a 15 year maturity 4% coupon,6% yield bond with duration of 10.5 years and a convexity of 128.75.The bond is currently priced at $805.76.If interest rate were to increase 200 basis points your predicted new price for the bond (including convexity)is _________.

Accepted Answer

A)  $638.85 
B)  $642.54 
C)  $666.88 
D)  $705.03 
A)  $638.85 
B)  $642.54 
C)  $666.88 
D)  $705.03

Question 6

Bond prices are _______ sensitive to changes in yield when the bond is selling at a _______ initial yield to maturity.

Accepted Answer

A)  more; lower 
B)  more; higher 
C)  less; lower 
D)  equally; higher or lower 
A)  more; lower 
B)  more; higher 
C)  less; lower 
D)  equally; higher or lower

Question 7

A bond has a current price of $1,030.The yield on the bond is 8.00%.If the yield changes from 8.00% to 8.10%,the price of the bond will go down to $1,025.88.The modified duration of this bond is _________.

Accepted Answer

A)  4.32 
B)  4.00 
C)  3.25 
D)  3.75 
A)  4.32 
B)  4.00 
C)  3.25 
D)  3.75

Question 8

Steel Pier Company has issued bonds that pay semiannually with the following characteristics:  
-If the bond's coupon was smaller than 10%,the modified duration would be _____ compared to the original modified duration.

Accepted Answer

A)  larger 
B)  unchanged 
C)  smaller 
D)  There is not enough information to determine the direction of change 
A)  larger 
B)  unchanged 
C)  smaller 
D)  There is not enough information to determine the direction of change

Question 9

You find a 5 year AA Xerox bond priced to yield 6%.You find a similar risk 5 year Canon bond priced to yield 6.5%.To take advantage of this you should do which of the following?

Accepted Answer

A)  Short the Canon bond and buy the Xerox bond 
B)  Buy the Canon bond and short the Xerox bond 
C)  Short both the Canon bond and the Xerox bond 
D)  Buy both the Canon bond and the Xerox bond 
A)  Short the Canon bond and buy the Xerox bond 
B)  Buy the Canon bond and short the Xerox bond 
C)  Short both the Canon bond and the Xerox bond 
D)  Buy both the Canon bond and the Xerox bond

Question 10

A pension fund must pay out $1 million next year,$2 million the following year and then $3 million the year after that.If the discount rate is 8% what is the duration of this set of payments?

Accepted Answer

A)  2.00 years 
B)  2.15 years 
C)  2.29 years 
D)  2.53 years 
A)  2.00 years 
B)  2.15 years 
C)  2.29 years 
D)  2.53 years

Question 11

Steel Pier Company has issued bonds that pay semiannually with the following characteristics:  
-If the yield to maturity decreases to 8.045% the expected percentage change in the price of the bond using Macauley's duration would be ____,while the expected percentage change in the price of the bond using modified duration would be ____.

Accepted Answer

A)  11%, 12% 
B)  12%, 11% 
C)  12%, 12% 
D)  11%, 11% 
A)  11%, 12% 
B)  12%, 11% 
C)  12%, 12% 
D)  11%, 11%

Question 12

A zero coupon bond is selling at a deep discount price of $430.00.It matures in 13 years.If the yield to maturity of the bond is 6.7%,what is the duration of the bond?

Accepted Answer

A)  6.7 years 
B)  8.0 years 
C)  10 years 
D)  13 years 
A)  6.7 years 
B)  8.0 years 
C)  10 years 
D)  13 years

Question 13

A bond with a 9-year duration is worth $1,080.00 and its yield to maturity is 8%.If the yield to maturity falls to 7.84%,you would predict that the new value of the bond will be _________.

Accepted Answer

A)  $1,035 
B)  $1,036 
C)  $1,094 
D)  $1,124 
A)  $1,035 
B)  $1,036 
C)  $1,094 
D)  $1,124

Question 14

A bank has $50 million in assets,$47 million in liabilities and $3 million in shareholders' equity.If the duration of its liabilities are 1.3 and the bank wants to immunize its net worth against interest rate risk and thus set the duration of equity equal to zero,it should select assets with an average duration of _________.

Accepted Answer

A)  1.22 
B)  1.50 
C)  1.60 
D)  2.00 
A)  1.22 
B)  1.50 
C)  1.60 
D)  2.00

Question 15

The pioneer of the duration concept was _________.

Accepted Answer

A)  Eugene Fama 
B)  John Herzog 
C)  Frederick Macaulay 
D)  Harry Markowitz 
A)  Eugene Fama 
B)  John Herzog 
C)  Frederick Macaulay 
D)  Harry Markowitz

Question 16

You have an investment that in today's dollars returns 15% of your investment in year 1,12% in year two,9% in year 3 and the remainder in year 4.What is the duration of this investment?

Accepted Answer

A)  4 years 
B)  3.50 years 
C)  3.22 years 
D)  2.95 years 
A)  4 years 
B)  3.50 years 
C)  3.22 years 
D)  2.95 years

Question 17

Pension fund managers can generally best bring about an effective reduction in their interest rate risk by holding ___________________.

Accepted Answer

A)  long maturity bonds 
B)  long duration bonds 
C)  short maturity bonds 
D)  short duration bonds 
A)  long maturity bonds 
B)  long duration bonds 
C)  short maturity bonds 
D)  short duration bonds

Question 18

A bond swap made in response to forecasts of interest rate changes 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

Moving to higher yield bonds,usually with longer maturities 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 20

In a pure yield pickup swap,________ bonds are exchanged for _________ bonds.

Accepted Answer

A)  longer duration; shorter duration 
B)  shorter duration; longer duration 
C)  high coupon; high yield 
D)  low yield; high yield 
A)  longer duration; shorter duration 
B)  shorter duration; longer duration 
C)  high coupon; high yield 
D)  low yield; high yield

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

Market economists all predict a rise in interest rates.An astute bond manager wishing to maximize her capital gain might employ which strategy?

You own a bond that has a duration of 6 years.Interest rates are currently 7% but you believe the Fed is about to increase interest rates by 25 basis points.Your predicted price change on this bond is ________.

______________ is an important characteristic of the relationship between bond prices and yields.

You have a 15 year maturity 4% coupon,6% yield bond with duration of 10.5 years and a convexity of 128.75.The bond is currently priced at $805.76.If interest rate were to increase 200 basis points your predicted new price for the bond (including convexity)is _________.

Bond prices are _ sensitive to changes in yield when the bond is selling at a _ initial yield to maturity.

A bond has a current price of $1,030.The yield on the bond is 8.00%.If the yield changes from 8.00% to 8.10%,the price of the bond will go down to $1,025.88.The modified duration of this bond is _________.

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: -If the bond's coupon was smaller than 10%,the modified duration would be _____ compared to the original modified duration.

You find a 5 year AA Xerox bond priced to yield 6%.You find a similar risk 5 year Canon bond priced to yield 6.5%.To take advantage of this you should do which of the following?

A pension fund must pay out $1 million next year,$2 million the following year and then $3 million the year after that.If the discount rate is 8% what is the duration of this set of payments?

A zero coupon bond is selling at a deep discount price of $430.00.It matures in 13 years.If the yield to maturity of the bond is 6.7%,what is the duration of the bond?

A bond with a 9-year duration is worth $1,080.00 and its yield to maturity is 8%.If the yield to maturity falls to 7.84%,you would predict that the new value of the bond will be _________.

The pioneer of the duration concept was _________.

You have an investment that in today's dollars returns 15% of your investment in year 1,12% in year two,9% in year 3 and the remainder in year 4.What is the duration of this investment?

Pension fund managers can generally best bring about an effective reduction in their interest rate risk by holding ___________________.

A bond swap made in response to forecasts of interest rate changes is called ______.

Moving to higher yield bonds,usually with longer maturities is called ________.

In a pure yield pickup swap, bonds are exchanged for _ bonds.

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

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

Market economists all predict a rise in interest rates.An astute bond manager wishing to maximize her capital gain might employ which strategy?

You own a bond that has a duration of 6 years.Interest rates are currently 7% but you believe the Fed is about to increase interest rates by 25 basis points.Your predicted price change on this bond is ________.

______________ is an important characteristic of the relationship between bond prices and yields.

You have a 15 year maturity 4% coupon,6% yield bond with duration of 10.5 years and a convexity of 128.75.The bond is currently priced at $805.76.If interest rate were to increase 200 basis points your predicted new price for the bond (including convexity)is _________.

Bond prices are _______ sensitive to changes in yield when the bond is selling at a _______ initial yield to maturity.

A bond has a current price of $1,030.The yield on the bond is 8.00%.If the yield changes from 8.00% to 8.10%,the price of the bond will go down to $1,025.88.The modified duration of this bond is _________.

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: -If the bond's coupon was smaller than 10%,the modified duration would be _____ compared to the original modified duration.

You find a 5 year AA Xerox bond priced to yield 6%.You find a similar risk 5 year Canon bond priced to yield 6.5%.To take advantage of this you should do which of the following?

A pension fund must pay out $1 million next year,$2 million the following year and then $3 million the year after that.If the discount rate is 8% what is the duration of this set of payments?

A zero coupon bond is selling at a deep discount price of $430.00.It matures in 13 years.If the yield to maturity of the bond is 6.7%,what is the duration of the bond?

A bond with a 9-year duration is worth $1,080.00 and its yield to maturity is 8%.If the yield to maturity falls to 7.84%,you would predict that the new value of the bond will be _________.

The pioneer of the duration concept was _________.

You have an investment that in today's dollars returns 15% of your investment in year 1,12% in year two,9% in year 3 and the remainder in year 4.What is the duration of this investment?

Pension fund managers can generally best bring about an effective reduction in their interest rate risk by holding ___________________.

A bond swap made in response to forecasts of interest rate changes is called ______.

Moving to higher yield bonds,usually with longer maturities is called ________.

In a pure yield pickup swap,________ bonds are exchanged for _________ bonds.

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

Bond prices are _ sensitive to changes in yield when the bond is selling at a _ initial yield to maturity.

In a pure yield pickup swap, bonds are exchanged for _ bonds.