Question 1

A rate anticipation swap is an exchange of bonds undertaken to

Accepted Answer

A) shift portfolio duration in response to an anticipated change in interest rates. 
B) shift between corporate and government bonds when the yield spread is out of line with historical values. 
C) profit from apparent mispricing between two bonds. 
D) change the credit risk of the portfolio. 
A) shift portfolio duration in response to an anticipated change in interest rates. 
B) shift between corporate and government bonds when the yield spread is out of line with historical values. 
C) profit from apparent mispricing between two bonds. 
D) change the credit risk of the portfolio.

Question 2

Consider a bond selling at par with modified duration of 22 years and convexity of 415.A 2% decrease in yield would cause the price to increase by 44% according to the duration rule.What would be the percentage price change according to the duration-with-convexity rule?

Accepted Answer

A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 52.3% 
A) 21.2% 
B) 25.4% 
C) 17.0% 
D) 52.3%

Question 3

An analyst who selects a particular holding period and predicts the yield curve at the end of that holding period is engaging in

Accepted Answer

A) a rate anticipation swap. 
B) immunization. 
C) horizon analysis. 
D) an intermarket spread swap. 
A) a rate anticipation swap. 
B) immunization. 
C) horizon analysis. 
D) an intermarket spread swap.

Question 4

Indexing of bond portfolios is difficult because

Accepted Answer

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 options are true. 
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 options are true.

Question 5

Ceteris paribus, the duration of a bond is positively correlated with the bond's

Accepted Answer

A) time to maturity. 
B) coupon rate. 
C) yield to maturity. 
D) All of the options are correct. 
A) time to maturity. 
B) coupon rate. 
C) yield to maturity. 
D) All of the options are correct.

Question 6

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 year to maturity and a 10% coupon rate.
2) A zero-coupon bond, Y, with a 5-year year to maturity and a 10% yield to maturity.

Accepted Answer

A) Bond X because of the higher yield to maturity 
B) Bond X because of the longer time to maturity 
C) Bond Y because of the longer duration 
D) Both have the same sensitivity because both have the same yield to maturity. 
A) Bond X because of the higher yield to maturity 
B) Bond X because of the longer time to maturity 
C) Bond Y because of the longer duration 
D) Both have the same sensitivity because both have the same yield to maturity.

Question 7

Immunization is not a strictly passive strategy because

Accepted Answer

A) it requires choosing an asset portfolio that matches an index. 
B) there is likely to be a gap between the values of assets and liabilities in most portfolios. 
C) it requires frequent rebalancing as maturities and interest rates change. 
D) durations of assets and liabilities fall at the same rate. 
A) it requires choosing an asset portfolio that matches an index. 
B) there is likely to be a gap between the values of assets and liabilities in most portfolios. 
C) it requires frequent rebalancing as maturities and interest rates change. 
D) durations of assets and liabilities fall at the same rate.

Question 8

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

Accepted Answer

A) term to maturity is higher. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) All of the options are correct. 
A) term to maturity is higher. 
B) coupon rate is higher. 
C) yield to maturity is higher. 
D) All of the options are correct.

Question 9

According to the duration concept,

Accepted Answer

A) only coupon payments matter. 
B) only maturity value matters. 
C) the coupon payments made prior to maturity make the effective maturity of the bond greater than its actual time to maturity. 
D) the coupon payments made prior to maturity make the effective maturity of the bond less than its actual time to maturity. 
A) only coupon payments matter. 
B) only maturity value matters. 
C) the coupon payments made prior to maturity make the effective maturity of the bond greater than its actual time to maturity. 
D) the coupon payments made prior to maturity make the effective maturity of the bond less than its actual time to maturity.

Question 10

A 10%, 30-year corporate bond was recently being priced to yield 12%.The Macaulay duration for the bond is 11.3 years.Given this information, the bond's modified duration would be

Accepted Answer

A) 8.05. 
B) 10.09. 
C) 9.27. 
D) 11.22. 
A) 8.05. 
B) 10.09. 
C) 9.27. 
D) 11.22.

Question 11

A substitution swap is an exchange of bonds undertaken to

Accepted Answer

A) change the credit risk of a portfolio. 
B) extend the duration of a portfolio. 
C) reduce the duration of a portfolio. 
D) profit from apparent mispricing between two bonds. 
A) change the credit risk of a portfolio. 
B) extend the duration of a portfolio. 
C) reduce the duration of a portfolio. 
D) profit from apparent mispricing between two bonds.

Question 12

Which of the following bonds has the longest duration?

Accepted Answer

A) A 15-year maturity, 0% coupon bond. 
B) A 15-year maturity, 9% coupon bond. 
C) A 20-year maturity, 9% coupon bond. 
D) A 20-year maturity, 0% coupon bond. 
A) A 15-year maturity, 0% coupon bond. 
B) A 15-year maturity, 9% coupon bond. 
C) A 20-year maturity, 9% coupon bond. 
D) A 20-year maturity, 0% coupon bond.

Question 13

The duration of a 20-year zero-coupon bond is

Accepted Answer

A) equal to 20. 
B) larger than 20. 
C) smaller than 20. 
D) equal to that of a 20-year 10% coupon bond. 
A) equal to 20. 
B) larger than 20. 
C) smaller than 20. 
D) equal to that of a 20-year 10% coupon bond.

Question 14

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

Accepted Answer

A) term to maturity is higher. 
B) coupon rate is lower. 
C) yield to maturity is higher. 
D) term to maturity is higher and coupon rate is lower. 
A) term to maturity is higher. 
B) coupon rate is lower. 
C) yield to maturity is higher. 
D) term to maturity is higher and coupon rate is lower.

Question 15

Par-value-bond F has a modified duration of 9.Which one of the following statements regarding the bond is true?

Accepted Answer

A) If the market yield increases by 1%, the bond's price will decrease by $90. 
B) If the market yield increases by 1%, the bond's price will increase by $90. 
C) If the market yield increases by 1%, the bond's price will decrease by $60. 
D) If the market yield decreases by 1%, the bond's price will increase by $60. 
A) If the market yield increases by 1%, the bond's price will decrease by $90. 
B) If the market yield increases by 1%, the bond's price will increase by $90. 
C) If the market yield increases by 1%, the bond's price will decrease by $60. 
D) If the market yield decreases by 1%, the bond's price will increase by $60.

Question 16

Which of the following bonds has the longest duration?

Accepted Answer

A) An 8-year maturity, 0% coupon bond 
B) An 8-year maturity, 5% coupon bond 
C) A 10-year maturity, 5% coupon bond 
D) A 10-year maturity, 0% coupon bond 
A) An 8-year maturity, 0% coupon bond 
B) An 8-year maturity, 5% coupon bond 
C) A 10-year maturity, 5% coupon bond 
D) A 10-year maturity, 0% coupon bond

Question 17

A 9%, 16-year bond has a yield to maturity of 11% and duration of 9.25 years.If the market yield changes by 32 basis points, how much change will there be in the bond's price?

Accepted Answer

A) 1.85% 
B) 2.01% 
C) 2.67% 
D) 6.44% 
A) 1.85% 
B) 2.01% 
C) 2.67% 
D) 6.44%

Question 18

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

Accepted Answer

A) I and II 
B) III and V 
C) III, IV, and V 
D) I, III, IV, and V 
A) I and II 
B) III and V 
C) III, IV, and V 
D) I, III, IV, and V

Question 19

Identify the bond that has the longest duration (no calculations necessary).

Accepted Answer

A) 20-year maturity with an 8% coupon 
B) 20-year maturity with a 12% coupon 
C) 20-year maturity with a 0% coupon 
D) 10-year maturity with a 15% coupon 
A) 20-year maturity with an 8% coupon 
B) 20-year maturity with a 12% coupon 
C) 20-year maturity with a 0% coupon 
D) 10-year maturity with a 15% coupon

Question 20

The two components of interest-rate risk are

Accepted Answer

A) price risk and default risk. 
B) reinvestment risk and systematic risk. 
C) call risk and price risk. 
D) price risk and reinvestment risk. 
A) price risk and default risk. 
B) reinvestment risk and systematic risk. 
C) call risk and price risk. 
D) price risk and reinvestment risk.

Exam 16: Managing Bond Portfolios

A rate anticipation swap is an exchange of bonds undertaken to

Consider a bond selling at par with modified duration of 22 years and convexity of 415.A 2% decrease in yield would cause the price to increase by 44% according to the duration rule.What would be the percentage price change according to the duration-with-convexity rule?

An analyst who selects a particular holding period and predicts the yield curve at the end of that holding period is engaging in

Indexing of bond portfolios is difficult because

Ceteris paribus, the duration of a bond is positively correlated with the bond's

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 year to maturity and a 10% coupon rate. 2) A zero-coupon bond, Y, with a 5-year year to maturity and a 10% yield to maturity.

Immunization is not a strictly passive strategy because

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

According to the duration concept,

A 10%, 30-year corporate bond was recently being priced to yield 12%.The Macaulay duration for the bond is 11.3 years.Given this information, the bond's modified duration would be

A substitution swap is an exchange of bonds undertaken to

Which of the following bonds has the longest duration?

The duration of a 20-year zero-coupon bond is

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

Par-value-bond F has a modified duration of 9.Which one of the following statements regarding the bond is true?

Which of the following bonds has the longest duration?

A 9%, 16-year bond has a yield to maturity of 11% and duration of 9.25 years.If the market yield changes by 32 basis points, how much change will there be in the bond's price?

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

Identify the bond that has the longest duration (no calculations necessary).

The two components of interest-rate risk are

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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