Exam 16: Managing Bond Portfolios

Which of the following statements are true? I) Holding other things constant, the duration of a bond decreases with time to maturity. II) Given time to maturity, the duration of a zero-coupon increases with yield to maturity. III).Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower. IV) Duration is a better measure of price sensitivity to interest-rate changes than is time to maturity.

Interest-rate risk is important to

The curvature of the price yield curve for a given bond is referred to as the bond's

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 correlated with 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.

The duration of a 5-year zero-coupon bond is

Duration

The duration of a par-value bond with a coupon rate of 7% and a remaining time to maturity of 3 years is

Which one of the following statements is true concerning the duration of a perpetuity?

The duration of a par-value bond with a coupon rate of 6.5% and a remaining time to maturity of 4 years is

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

Par-value bond XYZ has a modified duration of 6.Which one of the following statements regarding the bond is true?

The duration of a bond is a function of the bond's

Duration measures

A seven-year par value bond has a coupon rate of 9% (paid annually) and a modified duration of

Holding other factors constant, which one of the following bonds has the smallest price volatility?

Given the time to maturity, the duration of a zero-coupon bond is higher when the discount rate is

The duration of a perpetuity with a yield of 10% is

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.

A 7%, 14-year bond has a yield to maturity of 6% and duration of 7 years.If the market yield changes by 44 basis points, how much change will there be in the bond's price?

Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bond's