Question 1

Calculate the duration (measured in six-monthly periods)of a bond with a price of $100,two years to maturity,and yield and coupon rates of 5% and 10% p.a.respectively.

Accepted Answer

A)  $ 3.65 $ 
B)  $ 3.74 $ 
C)  $ 3.79 $ 
D)  $ 3.82 $

Question 2

Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.Assume the yield on this bond decreases instantaneously from 8% p.a.to 7.75% p.a.What would be the expected increase in the bond price?

Accepted Answer

A)  $ \$ 317.79 $ 
B)  $ \$ 423.27 $ 
C)  $ -\$ 459.15 $ 
D)  $ \$ 501.07 $

Question 3

You have purchased a guaranteed investment contract (GIC)from an insurance firm that promises to pay you a 5% compound rate of return per year for 6 years.If you pay $10,000 for the GIC today and receive no interest along the way,you will get __________ in 6 years (to the nearest dollar).

Accepted Answer

A) $12,565 
B) $13,000 
C) $13,401 
D) $13,676

Question 4

Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.What is the Macaulay duration measure of this bond?

Accepted Answer

A)  $ 1.876 $ years: 
B)  $ 1.890 $ years 
C)  $ 2.017 $ years: 
D)  $ 2.401 $ years

Question 5

The duration of a 5-year zero-coupon bond is ____ years.

Accepted Answer

A) 4.5 
B) 5 
C) 5.5 
D) 3.5

Question 6

Calculate the price of a coupon-paying bond maturing in two years,where the bond has a face value of $100 000,yield of 7.5% p.a.and coupon rate of 7.5% p.a.Assume interest rates are paid half yearly and the last coupon payment has just been made.

Accepted Answer

A)  $ \$ 98 \quad 566 $ 
B)  $ \$ 98 \quad 887 $ 
C)  $ \$ 100 \quad 000 $ 
D)  $ \$ 102 \quad 332 $

Question 7

The common type of bonds involves varying coupon payments over time.

Accepted Answer

A) True 
 B)False

Question 8

Bond A has a price of $94 500 and a duration of 1.96.Bond B has a price of $44 327 and has a duration of 3.78.Calculate the duration of a portfolio comprised of two of Bond A and three of Bond B.

Accepted Answer

A)  $ 2.4794 $ 
B)  $ 2.5511 $ 
C)  $ 2.6638 $ 
D)  $ 2.6842 $

Question 9

What is the price of a $100 000 bond with 24 months to maturity and 12% p.a.coupon? Assume that the four consecutive semi-annual yields are 4% p.a. ,5% p.a. ,7% p.a.and 8% p.a.respectively.

Accepted Answer

A)  $ \$ 105 \quad 344.12 $ 
B)  $ \$ 109 \quad 380.90 $ 
C)  $ \$ 110 \quad 487.02 $ 
D)  $ \$ 111 \quad 356.77 $

Question 10

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

Accepted Answer

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

Question 11

Suppose a 5 year 8% p.a.bond with a yield of 6.5% and principal of $100 000 pays coupon payments semi-annually.What is the present value of this bond?

Accepted Answer

A)  $ \$ 102 \quad 954.64 $ 
B)  $ \$ 106 \quad 276.42 $ 
C)  $ \$ 106 \quad 316.80 $ 
D)  $ \$ 135 \quad 978.17 $

Question 12

The following statement,"investors must forgo some yield when compared with straight bonds because of the lower risk,and the market should price these accordingly",refers to index-linked bonds.

Accepted Answer

A) True 
 B)False

Question 13

What is the Fisher-Weil duration for a $100 000 bond with 24 months to maturity and 12% p.a.coupon? Assume that the four consecutive semi-annual yields are 4% p.a. ,5% p.a. ,7% p.a.and 8% p.a.respectively.

Accepted Answer

A)  $ 1.8443 $ years 
B)  $ 1.912 $ years 
C)  $ 1.988 $ years 
D)  $ 2.107 $ years

Question 14

Duration takes into account the non-linearity in the relationship between bond price and yield.

Accepted Answer

A) True 
 B)False

Question 15

When estimating a price change for a bond due to a change in the yield,incorporating convexity does not improve the estimate.

Accepted Answer

A) True 
 B)False

Question 16

Call risk refers to the uncertainty associated with future reinvestment rates.

Accepted Answer

A) True 
 B)False

Question 17

All other things equal,a bond's duration is _________.

Accepted Answer

A) higher when the coupon rate is higher 
B) lower when the coupon rate is higher 
C) the same when the coupon rate is higher 
D) indeterminable when the coupon rate is high

Question 18

For index-linked bonds,which of the following changes in alignment with the CPI?

Accepted Answer

A)  yield 
B)  holding period return 
C)  price 
D)  coupon rate

Question 19

Calculate the price of a coupon-paying bond maturing in 15 years,where the bond has a face value of $100 000,yield of 7% p.a.and coupon rate of 9% p.a.Assume interest rates are paid half yearly.

Accepted Answer

A)  $ \$ 125103 $ 
B)  $ \$ 118776 $ 
C)  $ \$ 118392 $ 
D)  $ \$ 132669 $

Question 20

What is the purchase price of a bond bought on 1 March 2005,paying semi-annual coupons of 6.0% p.a.and maturing on 15 June 2007? The coupons are paid on 15 June and 15 December each year,and each compounding period has 181 days.The bond has a face value of $100 000 and a yield of 7% p.a.

Accepted Answer

A)  $ \$ 98  \quad 668.76 $ 
B)  $ \$ 98  \quad 595.77 $ 
C)  $ \$ 99  \quad 145.75 $ 
D)  $ \$ 99  \quad 498.14 $

Exam 6: Bonds

Calculate the duration (measured in six-monthly periods) of a bond with a price of $100,two years to maturity,and yield and coupon rates of 5% and 10% p.a.respectively.

Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.Assume the yield on this bond decreases instantaneously from 8% p.a.to 7.75% p.a.What would be the expected increase in the bond price?

You have purchased a guaranteed investment contract (GIC) from an insurance firm that promises to pay you a 5% compound rate of return per year for 6 years.If you pay $10,000 for the GIC today and receive no interest along the way,you will get __________ in 6 years (to the nearest dollar) .

Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.What is the Macaulay duration measure of this bond?

The duration of a 5-year zero-coupon bond is ____ years.

Calculate the price of a coupon-paying bond maturing in two years,where the bond has a face value of $100 000,yield of 7.5% p.a.and coupon rate of 7.5% p.a.Assume interest rates are paid half yearly and the last coupon payment has just been made.

The common type of bonds involves varying coupon payments over time.

Bond A has a price of $94 500 and a duration of 1.96.Bond B has a price of $44 327 and has a duration of 3.78.Calculate the duration of a portfolio comprised of two of Bond A and three of Bond B.

What is the price of a $100 000 bond with 24 months to maturity and 12% p.a.coupon? Assume that the four consecutive semi-annual yields are 4% p.a. ,5% p.a. ,7% p.a.and 8% p.a.respectively.

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

Suppose a 5 year 8% p.a.bond with a yield of 6.5% and principal of $100 000 pays coupon payments semi-annually.What is the present value of this bond?

The following statement,"investors must forgo some yield when compared with straight bonds because of the lower risk,and the market should price these accordingly",refers to index-linked bonds.

What is the Fisher-Weil duration for a $100 000 bond with 24 months to maturity and 12% p.a.coupon? Assume that the four consecutive semi-annual yields are 4% p.a. ,5% p.a. ,7% p.a.and 8% p.a.respectively.

Duration takes into account the non-linearity in the relationship between bond price and yield.

When estimating a price change for a bond due to a change in the yield,incorporating convexity does not improve the estimate.

Call risk refers to the uncertainty associated with future reinvestment rates.

All other things equal,a bond's duration is _________.

For index-linked bonds,which of the following changes in alignment with the CPI?

Calculate the price of a coupon-paying bond maturing in 15 years,where the bond has a face value of $100 000,yield of 7% p.a.and coupon rate of 9% p.a.Assume interest rates are paid half yearly.

What is the purchase price of a bond bought on 1 March 2005,paying semi-annual coupons of 6.0% p.a.and maturing on 15 June 2007? The coupons are paid on 15 June and 15 December each year,and each compounding period has 181 days.The bond has a face value of $100 000 and a yield of 7% p.a.