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44. A perpetuity pays $100 each and every year forever. The duration of this perpetuity will be
__________ if its yield is 9%.
45. A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It
matures in 4 years. Its yield to maturity is currently 6%.
The duration of this bond is _______ years.
46. A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It
matures in 4 years. Its yield to maturity is currently 6%.
The modified duration of this bond is ______ years.
47. A bond has a maturity of 12 years and a duration of 9.5 years at a promised yield rate of
8%. What is the bond's modified duration?
48. A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000.
Its yield to maturity is 10%. You expect that interest rates will decline over the upcoming year and
that the yield to maturity on this bond will be only 8% a year from now. Using horizon analysis, the
return you expect to earn by holding this bond over the upcoming year is _________.
49. A bond with a 9-year duration is worth $1,080, and its yield to maturity is 8%. If the yield to
maturity falls to 7.84%, you would predict that the new value of the bond will be approximately
_________.
50. When interest rates increase, the duration of a 20-year bond selling at a premium
_________.
51. Duration facilitates the comparison of bonds with differing ___________.
52. The historical yield spread between the AA bond and the AAA bond has been 25 basis
points. Currently the spread is only 9 basis points. If you believe the spread will soon return to its
historical levels, you should ________________________.
53. The duration of a bond normally increases with an increase in:
I. Term to maturity
II. Yield to maturity
III. Coupon rate
54. A fixed-income portfolio manager sets a minimum acceptable rate of return on the bond
portfolio at 5% per year over the next 4 years. The portfolio is currently worth $10 million. One
year later interest rates are at 6%. What is the portfolio value trigger point at this time that would
require the manager to immunize the portfolio?
55. Compute the duration of an 8%, 5-year corporate bond with a par value of $1,000 and yield
to maturity of 10%.
56. Compute the modified duration of a 9% coupon, 3-year corporate bond with a yield to
maturity of 12%.
57. An 8%, 30-year bond has a yield to maturity of 10% and a modified duration of 8 years. If
the market yield drops by 15 basis points, there will be a __________ in the bond's price.
(Δ
58. To create a portfolio with a duration of 4 years using a 5-year zero-coupon bond and a 3-
year 8% annual coupon bond with a yield to maturity of 10%, one would have to invest ________ of
the portfolio value in the zero-coupon bond.
59. Which of the following set of conditions will result in a bond with the greatest price
volatility?
60. An investor who expects declining interest rates would maximize her capital gain by
purchasing a bond that has a _________ coupon and a _________ term to maturity.
61. If you choose a zero-coupon bond with a maturity that matches your investment horizon,
which of the following statements is (are) correct?
I. You will have no interest rate risk on this bond.
II. In the absence of default, you can be sure you will earn the promised yield rate.
III. The duration of your bond is less than the time to your investment horizon.
62. As compared with equivalent maturity bonds selling at par, deep discount bonds will have
________.
63. Steel Pier Company has issued bonds that pay semiannually with the following
characteristics:
The modified duration for the Steel Pier bond is ______.
