Question 1

The prices of the securities are more interest rate sensitive in _________interest rate environments than when interest rates are _________.

Accepted Answer

A)  low; low 
B)  low; high 
C)  high; high 
D)  none of the above 
A)  low; low 
B)  low; high 
C)  high; high 
D)  none of the above B

Question 2

The cover ratio needs to be higher the greater:

Accepted Answer

A)  the volatility of the return on assets. 
B)  the volatility of interest rates. 
C)  the leverage of the firm. 
D)  all of the above. 
A)  the volatility of the return on assets. 
B)  the volatility of interest rates. 
C)  the leverage of the firm. 
D)  all of the above. D

Question 3

A dumbbell portfolio consists of two zero- coupon bonds with average duration equal to the duration
of the benchmark.

Accepted Answer

A) True 
 B)False  True

Question 4

The convexity of a security increases as:

Accepted Answer

A)  the benchmark rises. 
B)  the market yield rises. 
C)  the term to maturity increases. 
D)  the coupons increase. 
A)  the benchmark rises. 
B)  the market yield rises. 
C)  the term to maturity increases. 
D)  the coupons increase.

Question 5

The number of futures contracts (N) necessary to close a given DGAP is determined by:

Accepted Answer

A)  total assets. 
B)  price of bill futures contract. 
C)  modified duration of futures contract. 
D)  all of the above. 
A)  total assets. 
B)  price of bill futures contract. 
C)  modified duration of futures contract. 
D)  all of the above.

Question 6

The weighted average of the squares of the times to the receipt of cash flows where the weights are the present values of the corresponding elements of the cash flow plus the weighted average of the times to receipt of the cash flows. This is known as the:

Accepted Answer

A)  duration. 
B)  convexity. 
C)  DGAP. 
D)  modified duration. 
A)  duration. 
B)  convexity. 
C)  DGAP. 
D)  modified duration.

Question 7

When DGAP = 0, a change in interest rates will have the same dollar value effect on the prices of the asset and liability. Our position is insulated from interest rate movements.

Accepted Answer

A) True 
 B)False

Question 8

If we annualised the duration, we end up with the convexity.

Accepted Answer

A) True 
 B)False

Question 9

The duration of a coupon bond increases at a diminishing rate as its term increases, so that the gap between the duration and term of the bond also widens as the term increases.

Accepted Answer

A) True 
 B)False

Question 10

For fixed- interest funds, that benchmark portfolio will have different durations.

Accepted Answer

A) True 
 B)False

Question 11

When a portfolio is immunised our net worth will not deteriorate upon a change of interest rates.

Accepted Answer

A) True 
 B)False

Question 12

As the term of the security increases, the sensitivity of its price to changes in interest rates:

Accepted Answer

A)  cannot be determined due to lack of information. 
B)  increases. 
C)  decreases. 
D)  is unchanged. 
A)  cannot be determined due to lack of information. 
B)  increases. 
C)  decreases. 
D)  is unchanged.

Question 13

When DGAP > 0, DA must be above DL. An interest rate increase will lead to a fall in the value of both the asset and the liability, but, since it has the higher duration, the price of the asset will fall further; that is, we will lose.

Accepted Answer

A) True 
 B)False

Question 14

The 'additive property' of duration says that the average duration of a group of securities is equal to the duration of all the cash flows generated by these securities.

Accepted Answer

A) True 
 B)False

Question 15

Duration gaps can be altered with the use of derivatives so that they are equal to zero.

Accepted Answer

A) True 
 B)False

Question 16

The average convexity of a dumbbell portfolio:

Accepted Answer

A)  falls as the coupons increase. 
B)  cannot be calculated. 
C)  eventually declines to zero. 
D)  is higher than that of a matching bullet portfolio. 
A)  falls as the coupons increase. 
B)  cannot be calculated. 
C)  eventually declines to zero. 
D)  is higher than that of a matching bullet portfolio.

Question 17

The duration of most securities as the yield changes.

Accepted Answer

A)  does not changes 
B)  decreases 
C)  changes 
D)  increases 
A)  does not changes 
B)  decreases 
C)  changes 
D)  increases

Question 18

The duration of a coupon bond falls as the yield increases.

Accepted Answer

A) True 
 B)False

Question 19

When we improve the accuracy of the approximation by taking account of the curvature of the price-yield curve, the concept is known as:

Accepted Answer

A)  modified duration. 
B)  DGAP. 
C)  convexity. 
D)  PVBP. 
A)  modified duration. 
B)  DGAP. 
C)  convexity. 
D)  PVBP.

Question 20

When hedging with DGAP, if the yields change by different amounts, the net value of the position will be affected.

Accepted Answer

A) True 
 B)False

The prices of the securities are more interest rate sensitive in _interest rate environments than when interest rates are _.

The cover ratio needs to be higher the greater:

A dumbbell portfolio consists of two zero- coupon bonds with average duration equal to the duration of the benchmark.

The convexity of a security increases as:

The number of futures contracts (N) necessary to close a given DGAP is determined by:

The weighted average of the squares of the times to the receipt of cash flows where the weights are the present values of the corresponding elements of the cash flow plus the weighted average of the times to receipt of the cash flows. This is known as the:

When DGAP = 0, a change in interest rates will have the same dollar value effect on the prices of the asset and liability. Our position is insulated from interest rate movements.

If we annualised the duration, we end up with the convexity.

The duration of a coupon bond increases at a diminishing rate as its term increases, so that the gap between the duration and term of the bond also widens as the term increases.

For fixed- interest funds, that benchmark portfolio will have different durations.

When a portfolio is immunised our net worth will not deteriorate upon a change of interest rates.

As the term of the security increases, the sensitivity of its price to changes in interest rates:

When DGAP > 0, DA must be above DL. An interest rate increase will lead to a fall in the value of both the asset and the liability, but, since it has the higher duration, the price of the asset will fall further; that is, we will lose.

The 'additive property' of duration says that the average duration of a group of securities is equal to the duration of all the cash flows generated by these securities.

Duration gaps can be altered with the use of derivatives so that they are equal to zero.

The average convexity of a dumbbell portfolio:

The duration of most securities as the yield changes.

The duration of a coupon bond falls as the yield increases.

When we improve the accuracy of the approximation by taking account of the curvature of the price-yield curve, the concept is known as:

When hedging with DGAP, if the yields change by different amounts, the net value of the position will be affected.

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

Interest Rates, the Yield Curve and Monetary Policy

The Foreign Exchange Market

Listed Securities

Fixed Rate Derivatives

Options

Global Financial Crisis

Managing Foreign Exchange Risk

Filters

Exam 14: Managing Interest Rate Risk

The prices of the securities are more interest rate sensitive in _________interest rate environments than when interest rates are _________.

The cover ratio needs to be higher the greater:

A dumbbell portfolio consists of two zero- coupon bonds with average duration equal to the duration of the benchmark.

The convexity of a security increases as:

The number of futures contracts (N) necessary to close a given DGAP is determined by:

The weighted average of the squares of the times to the receipt of cash flows where the weights are the present values of the corresponding elements of the cash flow plus the weighted average of the times to receipt of the cash flows. This is known as the:

When DGAP = 0, a change in interest rates will have the same dollar value effect on the prices of the asset and liability. Our position is insulated from interest rate movements.

If we annualised the duration, we end up with the convexity.

The duration of a coupon bond increases at a diminishing rate as its term increases, so that the gap between the duration and term of the bond also widens as the term increases.

For fixed- interest funds, that benchmark portfolio will have different durations.

When a portfolio is immunised our net worth will not deteriorate upon a change of interest rates.

As the term of the security increases, the sensitivity of its price to changes in interest rates:

When DGAP > 0, DA must be above DL. An interest rate increase will lead to a fall in the value of both the asset and the liability, but, since it has the higher duration, the price of the asset will fall further; that is, we will lose.

The 'additive property' of duration says that the average duration of a group of securities is equal to the duration of all the cash flows generated by these securities.

Duration gaps can be altered with the use of derivatives so that they are equal to zero.

The average convexity of a dumbbell portfolio:

The duration of most securities as the yield changes.

The duration of a coupon bond falls as the yield increases.

When we improve the accuracy of the approximation by taking account of the curvature of the price-yield curve, the concept is known as:

When hedging with DGAP, if the yields change by different amounts, the net value of the position will be affected.

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

Interest Rates, the Yield Curve and Monetary Policy

The Foreign Exchange Market

Listed Securities

Fixed Rate Derivatives

Options

Global Financial Crisis

Managing Foreign Exchange Risk

Filters

The prices of the securities are more interest rate sensitive in _interest rate environments than when interest rates are _.