Exam 13: Bond Analysis and Portfolio Management Strategies

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The following information is given concerning a substitution swap. You currently hold a 15-year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 15-year, 7 percent coupon bond priced to yield 8.5 percent. Assume a reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout period. -Refer to Exhibit 13.5. The value of the swap is ____ basis points in one year.

(Multiple Choice)

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Question 21

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The following information is given concerning a substitution swap. You currently hold a 25-year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25-year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period. -Refer to Exhibit 13.7. The realized compound yield on the current bond is

(Multiple Choice)

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Question 22

In a buy-and-hold strategy, bonds are purchased in light of the investor's objectives and constraints and then held until maturity.

(True/False)

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Question 23

If you expected interest rates to fall, you would prefer to own bonds with

(Multiple Choice)

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Question 24

For a given change in yield bond price, volatility is inversely related to term to maturity.

(True/False)

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Question 25

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 current price of the bond.

(Multiple Choice)

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Question 26

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Talmart Corporation bonds have a $1,000 face value and will mature in four years. The bonds have a 7 percent coupon rate. Interest is paid annually, and the required rate of return is 6 percent for these bonds. -Refer to Exhibit 13.2. What is the price of the Talmart corporate bonds?

(Multiple Choice)

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Question 27

The position of a bondholder that is long a callable bond is equal to being

(Multiple Choice)

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Question 28

In a ladder strategy,

(Multiple Choice)

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Question 29

Because you expect market interest rates to decline during the next four months, if you were offered two bonds with equal duration, you would select the one with the higher measure of convexity.

(True/False)

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Question 30

Consider a bond with a duration of 8 years having a yield to maturity of 8 percent, and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

(Multiple Choice)

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Question 31

Assume that you purchase a five-year, $1,000 par value bond, with a 6 percent coupon and a yield of 7 percent. Immediately after you purchase the bond, yields rise to 8 percent and remain at that level to maturity. Calculate the realized horizon yield if you hold the bond to maturity. Interest is paid annually.

(Multiple Choice)

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(80)

Question 32

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 10-year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate, you are considering a 10-year, 8 percent coupon bond priced to yield 9 percent. Assume a reinvestment at 9 percent, semiannual compounding, and a one-year workout period. -Refer to Exhibit 13.4. The value of the swap is ____ basis points in one year.

(Multiple Choice)

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(81)

Question 33

There is an inverse relationship between duration and coupon.

(True/False)

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Question 34

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. Assume that your investment horizon is two years and your portfolio consists only of bonds A and B. What proportion should be invested in each bond to immunize the portfolio?

(Multiple Choice)

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Question 35

A pure yield pickup swap involves a switch from a low-coupon bond to a higher-coupon bond of similar quality and maturity.

(True/False)

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Question 36

Bond price volatility varies directly with the term to maturity and directly with the coupon.

(True/False)

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Question 37

Which of the following would NOT normally be a reason for a bond swap?

(Multiple Choice)

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Question 38

Calculate the modified duration of a bond that has a Macaulay duration of 7.6 and the bond pays interest semi-annually with a coupon rate of 6 percent and a required rate of return of 8 percent.

(Multiple Choice)

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Question 39

Horizon matching is a combination of

(Multiple Choice)

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Question 40

Showing 21 - 40 of 125

In a buy-and-hold strategy, bonds are purchased in light of the investor's objectives and constraints and then held until maturity.

If you expected interest rates to fall, you would prefer to own bonds with

For a given change in yield bond price, volatility is inversely related to term to maturity.

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 current price of the bond.

The position of a bondholder that is long a callable bond is equal to being

In a ladder strategy,

Because you expect market interest rates to decline during the next four months, if you were offered two bonds with equal duration, you would select the one with the higher measure of convexity.

Consider a bond with a duration of 8 years having a yield to maturity of 8 percent, and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

There is an inverse relationship between duration and coupon.

A pure yield pickup swap involves a switch from a low-coupon bond to a higher-coupon bond of similar quality and maturity.

Bond price volatility varies directly with the term to maturity and directly with the coupon.

Which of the following would NOT normally be a reason for a bond swap?

Calculate the modified duration of a bond that has a Macaulay duration of 7.6 and the bond pays interest semi-annually with a coupon rate of 6 percent and a required rate of return of 8 percent.

Horizon matching is a combination of

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

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Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

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