Question 1

The term dedication, used to describe portfolio management techniques, is referring to servicing a prescribed set of

Accepted Answer

A)  interest payments. 
B)  assets. 
C)  liabilities. 
D)  pensioners. 
E)  sinking fund payments. 
A)  interest payments. 
B)  assets. 
C)  liabilities. 
D)  pensioners. 
E)  sinking fund payments. C

Question 2

The components of interest rate risk are price risk and maturity risk.

Accepted Answer

A) True 
 B)False  False

Question 3

A manager following an interest rate anticipation strategy would shorten portfolio duration if interest rates were expected to increase.

Accepted Answer

A) True 
 B)False  True

Question 4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds: both pay annual interest. Bond Y has a coupon of 6 percent per year, maturity of five years, yield to maturity of 6 percent per year, and a face value of $1000. Bond X has a coupon of 7 percent per year, maturity of 10 years, yield to maturity of 4 percent per year, and a face value of $1000.
-Refer to Exhibit 13.13. Calculate the modified duration for Bond X.

Accepted Answer

A)  4.22 
B)  7.8 
C)  7.5 
D)  9.2 
E)  4.34 
A)  4.22 
B)  7.8 
C)  7.5 
D)  9.2 
E)  4.34

Question 5

The lower a bond's yield to maturity, the greater its duration.

Accepted Answer

A) True 
 B)False

Question 6

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20-year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 20-year, Aa 10 percent coupon bond priced to yield 10.75 percent. Assume a reinvestment rate of 12.00 percent, semiannual compounding, and a one-year workout period.
  
-Refer to Exhibit 13.6. The interest on one coupon for the candidate bond is

Accepted Answer

A)  $2.40. 
B)  $2.75. 
C)  $9.60. 
D)  $11.00. 
E)  $50.00. 
A)  $2.40. 
B)  $2.75. 
C)  $9.60. 
D)  $11.00. 
E)  $50.00.

Question 7

Interest rate anticipation is one of the matched funding techniques that matches anticipated interest rates with the required rates on a portfolio.

Accepted Answer

A) True 
 B)False

Question 8

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with four years to maturity and a 5 percent coupon has a yield to maturity of 6 percent. Interest is paid annually.
-Refer to Exhibit 13.3. Calculate the modified duration for the bond.

Accepted Answer

A)  3.51 years 
B)  3.61 years 
C)  3.72 years 
D)  4.38 years 
E)  7.44 years 
A)  3.51 years 
B)  3.61 years 
C)  3.72 years 
D)  4.38 years 
E)  7.44 years

Question 9

The active strategies for bond management include all of the following EXCEPT

Accepted Answer

A)  interest rate anticipation. 
B)  credit analysis. 
C)  spread analysis. 
D)  classical immunization. 
E)  bond swaps. 
A)  interest rate anticipation. 
B)  credit analysis. 
C)  spread analysis. 
D)  classical immunization. 
E)  bond swaps.

Question 10

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with five years to maturity and a 6 percent coupon has a yield to maturity of 8 percent. Interest is paid semiannually.
-Refer to Exhibit 13.1. Calculate the current price of the bond.

Accepted Answer

A)  $1579.46 
B)  $918.89 
C)  $789.29 
D)  $1000 
E)  $743.29 
A)  $1579.46 
B)  $918.89 
C)  $789.29 
D)  $1000 
E)  $743.29

Question 11

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds: both pay annual interest. Bond C has a coupon of 6 percent per year, maturity of five years, yield to maturity of 6 percent per year, and a face value of $1000. Bond D has a coupon of 8 percent per year, maturity of 15 years, yield to maturity of 6 percent per year, and a face value of $1000.
-Refer to Exhibit 13.12. Assume that your investment horizon is 6 years and your portfolio consists only of Bond C and Bond D. Indicate the proportions invested in each bond so that the portfolio is immunized.

Accepted Answer

A)  50 percent in Bond C and 50 percent in Bond D 
B)  64 percent in Bond C and 36 percent in Bond D 
C)  36 percent in Bond C and 64 percent in Bond D 
D)  100 percent in Bond D 
E)  100 percent in Bond C 
A)  50 percent in Bond C and 50 percent in Bond D 
B)  64 percent in Bond C and 36 percent in Bond D 
C)  36 percent in Bond C and 64 percent in Bond D 
D)  100 percent in Bond D 
E)  100 percent in Bond C

Question 12

Convexity is a desirable feature of bonds because as interest rates decline, the price of a low convexity bond

Accepted Answer

A)  decreases at a decreasing rate 
B)  decreases at an increasing rate. 
C)  increases at a decreasing rate. 
D)  increases at an increasing rate 
E)  decreases at a decreasing rate. 
A)  decreases at a decreasing rate 
B)  decreases at an increasing rate. 
C)  increases at a decreasing rate. 
D)  increases at an increasing rate 
E)  decreases at a decreasing rate.

Question 13

Zappo Corporation just issued $1,000 face value bonds that will mature in 20 years and have a 7 percent coupon rate. Interest is paid semi-annually, and the required rate of return is 9 percent for these bonds. The bonds have a five-year call provision that will pay a call premium of $1,050 if they are called in. What is the price of the Zappo Corporation bond?

Accepted Answer

A)  $815.98 
B)  $817.43 
C)  $826.35 
D)  $920.87 
E)  $953.07 
A)  $815.98 
B)  $817.43 
C)  $826.35 
D)  $920.87 
E)  $953.07

Question 14

In a ladder strategy, funds are invested equally among a wide range of maturities.

Accepted Answer

A) True 
 B)False

Question 15

A graph of a bond's Price-Yield curve reveals all of the following EXCEPT

Accepted Answer

A)  price moves inverse to yield. 
B)  the bond sells at a premium when the yield is below the coupon rate. 
C)  the bond sells at a discount when the yield is above the coupon rate. 
D)  the Price-Yield curve is concave. 
E)  All of these are correct. 
A)  price moves inverse to yield. 
B)  the bond sells at a premium when the yield is below the coupon rate. 
C)  the bond sells at a discount when the yield is above the coupon rate. 
D)  the Price-Yield curve is concave. 
E)  All of these are correct.

Question 16

A swap relies heavily on interest rate expectations.

Accepted Answer

A) True 
 B)False

Question 17

A 12-year, 8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years. If interest rates decline by 50 basis points, what will be the percent change in price for this bond?

Accepted Answer

A)  +4.48 percent 
B)  +4.61 percent 
C)  +8.48 percent 
D)  +8.96 percent 
E)  +17.92 percent 
A)  +4.48 percent 
B)  +4.61 percent 
C)  +8.48 percent 
D)  +8.96 percent 
E)  +17.92 percent

Question 18

The longer the time to maturity, the greater the percentage change in a bond's price.

Accepted Answer

A) True 
 B)False

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7 percent coupon, matures in two years, has a yield to maturity of 8 percent, and a face value of $1,000. Bond B pays an annual 8 percent coupon, matures in three years, has a yield to maturity of 9 percent, and a face value of $1,000.
-Refer to Exhibit 13.14. Calculate the Modified Duration for Bond B.

Accepted Answer

A)  1.44 
B)  2.47 
C)  2.55 
D)  2.70 
E)  2.78 
A)  1.44 
B)  2.47 
C)  2.55 
D)  2.70 
E)  2.78

Question 20

Which of the following is a strategy that allows the bond manager flexibility to actively manage the portfolio subject to an overriding constraint that the portfolio remains immunized at some predetermined yield level?

Accepted Answer

A)  classical immunization 
B)  contingent immunization 
C)  bond swaps 
D)  valuation analysis 
E)  interest rate anticipation 
A)  classical immunization 
B)  contingent immunization 
C)  bond swaps 
D)  valuation analysis 
E)  interest rate anticipation

The term dedication, used to describe portfolio management techniques, is referring to servicing a prescribed set of

The components of interest rate risk are price risk and maturity risk.

A manager following an interest rate anticipation strategy would shorten portfolio duration if interest rates were expected to increase.

The lower a bond's yield to maturity, the greater its duration.

Interest rate anticipation is one of the matched funding techniques that matches anticipated interest rates with the required rates on a portfolio.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with four years to maturity and a 5 percent coupon has a yield to maturity of 6 percent. Interest is paid annually. -Refer to Exhibit 13.3. Calculate the modified duration for the bond.

The active strategies for bond management include all of the following EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with five years to maturity and a 6 percent coupon has a yield to maturity of 8 percent. Interest is paid semiannually. -Refer to Exhibit 13.1. Calculate the current price of the bond.

Convexity is a desirable feature of bonds because as interest rates decline, the price of a low convexity bond

In a ladder strategy, funds are invested equally among a wide range of maturities.

A graph of a bond's Price-Yield curve reveals all of the following EXCEPT

A swap relies heavily on interest rate expectations.

A 12-year, 8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years. If interest rates decline by 50 basis points, what will be the percent change in price for this bond?

The longer the time to maturity, the greater the percentage change in a bond's price.

Which of the following is a strategy that allows the bond manager flexibility to actively manage the portfolio subject to an overriding constraint that the portfolio remains immunized at some predetermined yield level?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 13: Bond Analysis and Portfolio Management Strategies

The term dedication, used to describe portfolio management techniques, is referring to servicing a prescribed set of

The components of interest rate risk are price risk and maturity risk.

A manager following an interest rate anticipation strategy would shorten portfolio duration if interest rates were expected to increase.

The lower a bond's yield to maturity, the greater its duration.

Interest rate anticipation is one of the matched funding techniques that matches anticipated interest rates with the required rates on a portfolio.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with four years to maturity and a 5 percent coupon has a yield to maturity of 6 percent. Interest is paid annually. -Refer to Exhibit 13.3. Calculate the modified duration for the bond.

The active strategies for bond management include all of the following EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with five years to maturity and a 6 percent coupon has a yield to maturity of 8 percent. Interest is paid semiannually. -Refer to Exhibit 13.1. Calculate the current price of the bond.

Convexity is a desirable feature of bonds because as interest rates decline, the price of a low convexity bond

In a ladder strategy, funds are invested equally among a wide range of maturities.

A graph of a bond's Price-Yield curve reveals all of the following EXCEPT

A swap relies heavily on interest rate expectations.

A 12-year, 8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years. If interest rates decline by 50 basis points, what will be the percent change in price for this bond?

The longer the time to maturity, the greater the percentage change in a bond's price.

Which of the following is a strategy that allows the bond manager flexibility to actively manage the portfolio subject to an overriding constraint that the portfolio remains immunized at some predetermined yield level?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters