Chapter 16 Managing Bond Portfolios Answer Key
Multiple Choice Questions
1.
The duration of a bond is a function of the bond’s
2.
Ceteris paribus, the duration of a bond is positively correlated with the bond’s
3.
Ceteris paribus, the duration of a bond is negatively correlated with the bond’s
4.
Holding other factors constant, the interest-rate risk of a coupon bond is higher when the
bond’s
5.
Holding other factors constant, the interest-rate risk of a coupon bond is higher when the
bond’s
6.
Holding other factors constant, the interest-rate risk of a coupon bond is higher when the
bond’s
7.
Holding other factors constant, the interest-rate risk of a coupon bond is lower when the
bond’s
8.
Holding other factors constant, the interest-rate risk of a coupon bond is lower when the
bond’s
9.
Holding other factors constant, the interest-rate risk of a coupon bond is lower when the
bond’s
10.
The “modified duration” used by practitioners is equal to the Macaulay duration
Topic: Duration
11.
The “modified duration” used by practitioners is equal to ______ divided by (one plus the
bond’s yield to maturity).
12.
Given the time to maturity, the duration of a zero-coupon bond is higher when the discount
rate is
Topic: Duration
13.
The interest-rate risk of a bond is
14.
Which of the following two bonds is more price sensitive to changes in interest rates?
1) A par value bond, X, with a 5-year-to-maturity and a 10% coupon rate.
2) A zero-coupon bond, Y, with a 5-year-to-maturity and a 10% yield to maturity.
15.
Holding other factors constant, which one of the following bonds has the smallest price
volatility?
16.
Which of the following is not true?
17.
Which of the following is true?
18.
The duration of a 5-year zero-coupon bond is
19.
The basic purpose of immunization is to
20.
The duration of a par value bond with a coupon rate of 8% (paid annually) and a remaining
time to maturity of 5 years is
21.
The duration of a perpetuity with a yield of 8% is
22.
A seven-year par value bond has a coupon rate of 9% (paid annually) and a modified
duration of
23.
Par value bond XYZ has a modified duration of 6. Which one of the following statements
regarding the bond is true?
24.
Which of the following bonds has the longest duration?
25.
Which one of the following par value 12% coupon bonds experiences a price change of $23
when the market yield changes by 50 basis points?
26.
Which one of the following statements is true concerning the duration of a perpetuity?
27.
Which one of the following statements is false concerning the duration of a perpetuity?
28.
The two components of interest-rate risk are
29.
The duration of a coupon bond