30.
Indexing of bond portfolios is difficult because
31.
You have an obligation to pay $1,488 in four years and two months. In which bond would
you invest your $1,000 to accumulate this amount, with relative certainty, even if the yield
on the bond declines to 9.5% immediately after you purchase the bond?
32.
Duration measures
33.
Duration
34.
Identify the bond that has the longest duration (no calculations necessary).
35.
When interest rates decline, the duration of a 10-year bond selling at a premium
36.
An 8%, 30-year corporate bond was recently being priced to yield 10%. The Macaulay
duration for the bond is 10.20 years. Given this information, the bond’s modified duration
would be
37.
An 8%, 15-year bond has a yield to maturity of 10% and duration of 8.05 years. If the
market yield changes by 25 basis points, how much change will there be in the bond’s
price?
38.
One way that banks can reduce the duration of their asset portfolios is through the use of
39.
The duration of a bond normally increases with an increase in
40.
Which one of the following is an incorrect statement concerning duration?
41.
Which one of the following is a correct statement concerning duration?
42.
Immunization is not a strictly passive strategy because
43.
Some of the problems with immunization are
44.
If a bond portfolio manager believes
I) in market efficiency, he or she is likely to be a passive portfolio manager.
II) that he or she can accurately predict interest rate changes, he or she is likely to be an
active portfolio manager.
III) that he or she can identify bond market anomalies, he or she is likely to be a passive
portfolio manager.
45.
Cash flow matching on a multiperiod basis is referred to as
46.
Immunization through duration matching of assets and liabilities may be ineffective or
inappropriate because
47.
The curvature of the price-yield curve for a given bond is referred to as the bond’s
48.
Consider a bond selling at par with modified duration of 10.6 years and convexity of 210. A
2% decrease in yield would cause the price to increase by 21.2%, according to the duration
rule. What would be the percentage price change according to the duration-with-convexity
rule?
49.
A substitution swap is an exchange of bonds undertaken to
50.
A rate anticipation swap is an exchange of bonds undertaken to
51.
An analyst who selects a particular holding period and predicts the yield curve at the end
of that holding period is engaging in
52.
Interest-rate risk is important to
53.
Which of the following are true about the interest-rate sensitivity of bonds?
I) Bond prices and yields are inversely related.
II) Prices of long-term bonds tend to be more sensitive to interest-rate changes than
prices of short-term bonds.
III) Interest-rate risk is directly related to the bond’s coupon rate.
IV) The sensitivity of a bond’s price to a change in its yield to maturity is inversely related
to the yield to maturity at which the bond is currently selling.
54.
Which of the following are false about the interest-rate sensitivity of bonds?
I) Bond prices and yields are inversely related.
II) Prices of long-term bonds tend to be more sensitive to interest-rate changes than
prices of short-term bonds.
III) Interest-rate risk is directly related to the bond’s coupon rate.
IV) The sensitivity of a bond’s price to a change in its yield to maturity is inversely related
to the yield to maturity at which the bond is currently selling.
55.
Which of the following researchers have contributed significantly to bond portfolio
management theory?
I) Sidney Homer
II) Harry Markowitz
III) Burton Malkiel
IV) Martin Liebowitz
V) Frederick Macaulay
56.
According to the duration concept
57.
Duration is important in bond portfolio management because
I) it can be used in immunization strategies.
II) it provides a gauge of the effective average maturity of the portfolio.
III) it is related to the interest rate sensitivity of the portfolio.
IV) it is a good predictor of interest-rate changes.