Exam 16: Managing Bond Portfolios

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 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.

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

The two components of interest-rate risk are

Interest-rate risk is important to

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?

The "modified duration" used by practitioners is equal to the Macaulay duration

Duration

A 7%, 14-year bond has a yield to maturity of 4.4% and duration of 8.5 years. If the market yield changes by 54 basis points, how much change will there be in the bond's price?

When interest rates decline, the duration of a 10-year bond selling at a premium

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

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 8% is

Which of the following two bonds is more price sensitive to changes in interest rates? 1) A par-value bond, A, with a 12 year to maturity and a 12% coupon rate. 2) A zero-coupon bond, B, with a 12 year to maturity and a 12% yield to maturity.

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

Consider a four yearannual bond paying a 7% coupon, with a yield to maturity of 6.0%. What is the duration of the bond?

Consider a four year, zero-coupon bond, with a yield to maturity of 7.2%. What is the duration of the bond?

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

The duration of a 15-year zero-coupon bond 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

The "modified duration" used by practitioners is equal to ______ divided by (one plus the bond's yield to maturity).