Question 1

For a bond investor selecting a buy-and-hold strategy, which of the following would be the least important consideration?

Accepted Answer

A)  term to maturity 
B)  indenture provisions 
C)  coupon levels 
D)  liquidity 
E)  quality 
A)  term to maturity 
B)  indenture provisions 
C)  coupon levels 
D)  liquidity 
E)  quality

Question 2

For a given change in yield bond price, volatility is directly related to duration.

Accepted Answer

A) True 
 B)False

Question 3

A portfolio of bonds is immunized from interest rate risk if the duration of the portfolio is always equal to the desired investment horizon.

Accepted Answer

A) True 
 B)False

Question 4

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 dollar investment in the candidate bond is

Accepted Answer

A)  $780.34. 
B)  $1483.25. 
C)  $1361.54. 
D)  $1413.95. 
E)  $1000.00. 
A)  $780.34. 
B)  $1483.25. 
C)  $1361.54. 
D)  $1413.95. 
E)  $1000.00.

Question 5

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 2 percent coupon bond priced to yield 9.5 percent. As a swap candidate, you are considering a 20-year, Aa 14 percent coupon bond priced to yield 10.00. Assume a reinvestment rate of 11 percent, semiannual compounding, and a one-year workout period.
  
-Refer to Exhibit 13.8. The value of the swap is ____ basis points in one year.

Accepted Answer

A)  0.004921 
B)  0.4921 
C)  4.921 
D)  49.21 
E)  492.1 
A)  0.004921 
B)  0.4921 
C)  4.921 
D)  49.21 
E)  492.1

Question 6

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 Macaulay duration for the bond.

Accepted Answer

A)  3.19 years 
B)  3.36 years 
C)  3.57 years 
D)  3.72 years 
E)  3.84 years 
A)  3.19 years 
B)  3.36 years 
C)  3.57 years 
D)  3.72 years 
E)  3.84 years

Question 7

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds: both pay semiannual interest. Bond X has a coupon of 7 percent per year, maturity of 20 years, yield to maturity of 8 percent per year, and a face value of $1000. Bond Y has a coupon of 7 percent per year, maturity of 20 years, yield to maturity of 8.5 percent per year, and a face value of $1000.
-Refer to Exhibit 13.11. Calculate the value of swap out of Bond X into Bond Y.

Accepted Answer

A)  0.38 percent 
B)  0.81 percent 
C)  1.94 percent 
D)  3.76 percent 
E)  4.12 percent 
A)  0.38 percent 
B)  0.81 percent 
C)  1.94 percent 
D)  3.76 percent 
E)  4.12 percent

Question 8

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

Accepted Answer

A) True 
 B)False

Question 9

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8 percent per year, maturity of 30 years, yield to maturity of 9 percent per year, and a face value of $1000. Bond B has a coupon of 8 percent per year, maturity of 30 years, yield to maturity of 9.5 percent per year, and a face value of $1000.
-Refer to Exhibit 13.10. Calculate the value of swap out of Bond A into Bond B.

Accepted Answer

A)  0.41 percent 
B)  1.73 percent 
C)  0.23 percent 
D)  0.00 percent 
E)  0.51 percent 
A)  0.41 percent 
B)  1.73 percent 
C)  0.23 percent 
D)  0.00 percent 
E)  0.51 percent

Question 10

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. Calculate the modified duration for Bond C.

Accepted Answer

A)  4.47 
B)  4.22 
C)  4.34 
D)  5 
E)  5.34 
A)  4.47 
B)  4.22 
C)  4.34 
D)  5 
E)  5.34

Question 11

An investor in a pure yield pickup swap is most concerned about changes in interest rates.

Accepted Answer

A) True 
 B)False

Question 12

The bond management strategy intended to eliminate interest rate risk is immunization.

Accepted Answer

A) True 
 B)False

Question 13

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. If interest rates increase 50 basis points, what will be the approximate price change for the Talmart bond?

Accepted Answer

A)  -17.0 percent 
B)  -1.7 percent 
C)  1.7 percent 
D)  1.8 percent 
E)  17.0 percent 
A)  -17.0 percent 
B)  -1.7 percent 
C)  1.7 percent 
D)  1.8 percent 
E)  17.0 percent

Question 14

Reinvestment risk is greatest for bonds that have

Accepted Answer

A)  short maturities and low coupon rates. 
B)  long maturities and high coupon rates. 
C)  short maturities and high coupon rates. 
D)  long maturities and low coupon rates. 
E)  None of these are correct. 
A)  short maturities and low coupon rates. 
B)  long maturities and high coupon rates. 
C)  short maturities and high coupon rates. 
D)  long maturities and low coupon rates. 
E)  None of these are correct.

Question 15

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8 percent per year, maturity of 30 years, yield to maturity of 9 percent per year, and a face value of $1000. Bond B has a coupon of 8 percent per year, maturity of 30 years, yield to maturity of 9.5 percent per year, and a face value of $1000.
-Refer to Exhibit 13.10. Calculate the percentage gain per invested dollar for Bond B assuming a one-year horizon and a reinvestment rate of 9.5 percent per year.

Accepted Answer

A)  9.73 percent 
B)  9.93 percent 
C)  9.20 percent 
D)  8.20 percent 
E)  9.50 percent 
A)  9.73 percent 
B)  9.93 percent 
C)  9.20 percent 
D)  8.20 percent 
E)  9.50 percent

Question 16

Suppose the current six-year spot rate is 8 percent and the current five-year spot rate is 7 percent. What is the one year forward rate in five years?

Accepted Answer

A)  12.62 percent 
B)  11.58 percent 
C)  13.14 percent 
D)  14.65 percent 
E)  15.14 percent 
A)  12.62 percent 
B)  11.58 percent 
C)  13.14 percent 
D)  14.65 percent 
E)  15.14 percent

Question 17

A bond swap involves liquidating a current bond position and later investing in a similar issue under more favorable conditions.

Accepted Answer

A) True 
 B)False

Question 18

Investment style for a bond portfolio is best characterized by

Accepted Answer

A)  beta and credit quality. 
B)  credit quality and duration. 
C)  interest rate risk and yield to maturity. 
D)  yield to maturity and beta. 
E)  beta and duration. 
A)  beta and credit quality. 
B)  credit quality and duration. 
C)  interest rate risk and yield to maturity. 
D)  yield to maturity and beta. 
E)  beta and duration.

Question 19

Modified duration is determined by making small adjustments to the Macaulay duration.

Accepted Answer

A) True 
 B)False

Question 20

When applying active management techniques to a global portfolio, the additional concern is an expectation regarding exchange rates between countries.

Accepted Answer

A) True 
 B)False

For a bond investor selecting a buy-and-hold strategy, which of the following would be the least important consideration?

For a given change in yield bond price, volatility is directly related to duration.

A portfolio of bonds is immunized from interest rate risk if the duration of the portfolio is always equal to the desired investment horizon.

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 Macaulay duration for the bond.

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

An investor in a pure yield pickup swap is most concerned about changes in interest rates.

The bond management strategy intended to eliminate interest rate risk is immunization.

Reinvestment risk is greatest for bonds that have

Suppose the current six-year spot rate is 8 percent and the current five-year spot rate is 7 percent. What is the one year forward rate in five years?

A bond swap involves liquidating a current bond position and later investing in a similar issue under more favorable conditions.

Investment style for a bond portfolio is best characterized by

Modified duration is determined by making small adjustments to the Macaulay duration.

When applying active management techniques to a global portfolio, the additional concern is an expectation regarding exchange rates between countries.

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

For a bond investor selecting a buy-and-hold strategy, which of the following would be the least important consideration?

For a given change in yield bond price, volatility is directly related to duration.

A portfolio of bonds is immunized from interest rate risk if the duration of the portfolio is always equal to the desired investment horizon.

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 Macaulay duration for the bond.

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

An investor in a pure yield pickup swap is most concerned about changes in interest rates.

The bond management strategy intended to eliminate interest rate risk is immunization.

Reinvestment risk is greatest for bonds that have

Suppose the current six-year spot rate is 8 percent and the current five-year spot rate is 7 percent. What is the one year forward rate in five years?

A bond swap involves liquidating a current bond position and later investing in a similar issue under more favorable conditions.

Investment style for a bond portfolio is best characterized by

Modified duration is determined by making small adjustments to the Macaulay duration.

When applying active management techniques to a global portfolio, the additional concern is an expectation regarding exchange rates between countries.

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