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| 1 | |
The duration of a bond is a function of the bond's |
| | A) | coupon rate. |
| | B) | time to maturity. |
| | C) | yield to maturity. |
| | D) | all of the above |
| | E) | none of the above |
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| 2 | |
The "modified duration" used by practitioners is equal to the Macaulay duration |
| | A) | times the change in interest rate. |
| | B) | times (one plus the bond's yield to maturity). |
| | C) | divided by (one plus the bond's yield to maturity). |
| | D) | divided by (one minus the bond's yield to maturity). |
| | E) | none of the above |
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| 3 | |
The interest-rate risk of a bond is |
| | A) | the risk related to the possibility of bankruptcy of the bond's issuer. |
| | B) | the risk that arises from the uncertainty of the bond's return caused by changes in interest rates. |
| | C) | the unsystematic risk caused by factors unique in the bond. |
| | D) | A and B above. |
| | E) | A, B, and C above. |
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| 4 | |
Which of the following two bonds is more price sensitive to changes in interest rates? A par value bond, X, with 10 years-to-maturity and a 10% coupon rate or a zero-coupon bond, Y, with 10 years-to-maturity and a 10% yield-to-maturity. |
| | A) | Bond Y because of the longer duration. |
| | B) | Bond X because of the longer time to maturity. |
| | C) | Bond X because of the higher yield to maturity. |
| | D) | Both have the same sensitivity because both have the same yield to maturity. |
| | E) | None of the above are true. |
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| 5 | |
Holding other factors constant, which one of the following bonds has the smallest price volatility? |
| | A) | 6-year, 0% coupon bond |
| | B) | 6-year, 9% coupon bond |
| | C) | 6 year, 15% coupon bond |
| | D) | 6-year, 10% coupon bond |
| | E) | Cannot tell from the information given. |
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| 6 | |
Which of the following is not true? |
| | A) | Holding other things constant, the duration of a bond increases with time to maturity. |
| | B) | Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower. |
| | C) | Given time to maturity, the duration of a zero-coupon decreases with yield to maturity. |
| | D) | Duration is a better measure of price sensitivity to interest rate changes than is time to maturity. |
| | E) | None of the above are true. |
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| 7 | |
Par value bond GE has a modified duration of 11. Which one of the following statements regarding the bond is true? |
| | A) | If the market yield increases by 1% the bond's price will decrease by $55. |
| | B) | If the market yield increases by 1% the bond's price will increase by $55. |
| | C) | If the market yield increases by 1% the bond's price will decrease by $110. |
| | D) | If the market yield decreases by 1% the bond's price will increase by $110. |
| | E) | none of the above |
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| 8 | |
Contingent immunization |
| | A) | is a mixed-active passive bond portfolio management strategy. |
| | B) | is a strategy whereby the portfolio may or may not be immunized. |
| | C) | is a strategy whereby if and when some trigger point value of the portfolio is reached, the portfolio is immunized to insure an minimum required return. |
| | D) | A and B. |
| | E) | A, B, and C. |
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| 9 | |
Indexing of bond portfolios is difficult because |
| | A) | the number of bonds included in the major indexes is so large that it would be difficult to purchase them in the proper proportions. |
| | B) | many bonds are thinly traded so it is difficult to purchase them at a fair market price. |
| | C) | the composition of bond indexes is constantly changing. |
| | D) | all of the above |
| | E) | Both B and C are true. |
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| 10 | |
Duration |
| | A) | assesses the time element of bonds in terms of both coupon and term to maturity. |
| | B) | is a direct comparison between bond issues with different levels of risk. |
| | C) | allows structuring a portfolio to avoid interest-rate risk. |
| | D) | A and B. |
| | E) | A and C. |
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