Question 1

Modified duration is determined by making small adjustments to Macaulay duration.

Accepted Answer

A) True 
 B)False

Question 2

Consider a 10%, 15 year bond that pays interest annually quarterly, and its current price is $1060. What is the promised yield to maturity?

Accepted Answer

A) 10.23% 
B) 18.45% 
C) 2.31% 
D) 17.77% 
E) 9.26% 
A) 10.23% 
B) 18.45% 
C) 2.31% 
D) 17.77% 
E) 9.26%

Question 3

Exhibit 18.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually.
-Refer to Exhibit 18.3. Calculate the modified duration for the bond.

Accepted Answer

A) 3.51 years 
B) 3.61 years 
C) 3.72 years 
D) 4.38 years 
E) 7.44 years 
A) 3.51 years 
B) 3.61 years 
C) 3.72 years 
D) 4.38 years 
E) 7.44 years

Question 4

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Accepted Answer

A) Equal to or greater than par plus one year's interest. 
B) Equal to par. 
C) Equal to par less one year's interest. 
D) Less than par. 
E) Five percent over par. 
A) Equal to or greater than par plus one year's interest. 
B) Equal to par. 
C) Equal to par less one year's interest. 
D) Less than par. 
E) Five percent over par.

Question 5

An interest rate is the price of loanable funds.

Accepted Answer

A) True 
 B)False

Question 6

If the price before yields changed was $975, what is the resulting price?

Accepted Answer

A) $937.46 
B) $918.66 
C) $965.55 
D) $898.62 
E) $1012.45 
A) $937.46 
B) $918.66 
C) $965.55 
D) $898.62 
E) $1012.45

Question 7

Which of the following is not a major risk premium component for bond investors?

Accepted Answer

A) Quality differentials. 
B) Term to maturity. 
C) Indenture provisions. 
D) Yield to maturity. 
E) Exchange rate risk differences. 
A) Quality differentials. 
B) Term to maturity. 
C) Indenture provisions. 
D) Yield to maturity. 
E) Exchange rate risk differences.

Question 8

Suppose you have a 10%, 20 year bond traded at $1,120. If it is callable in 5 years at $1,150, what is the bond's approximate yield to call? Interest is paid quarterly.

Accepted Answer

A) 7.78% 
B) 8.00% 
C) 9.40% 
D) 9.36% 
E) 9.72% 
A) 7.78% 
B) 8.00% 
C) 9.40% 
D) 9.36% 
E) 9.72%

Question 9

The longer the time to maturity, the greater the percentage change in a bond's price.

Accepted Answer

A) True 
 B)False

Question 10

Consider a bond with a duration of 6 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

Accepted Answer

A) 2.88% 
B) 3.45% 
C) -3.89% 
D) -3.45% 
E) -2.88% 
A) 2.88% 
B) 3.45% 
C) -3.89% 
D) -3.45% 
E) -2.88%

Question 11

Which duration is computed by discounting flows using the yield to maturity of the bond?

Accepted Answer

A) Effective 
B) Macaulay Duration 
C) Modified Duration 
D) Present Value Duration 
E) Cash Flow Duration 
A) Effective 
B) Macaulay Duration 
C) Modified Duration 
D) Present Value Duration 
E) Cash Flow Duration

Question 12

A 15-year bond has a $1,000 par value bond, a 4% coupon and a yield to maturity of 3.3%. Interest is paid annually. The bond's current yield is

Accepted Answer

A) 3.7% 
B) 4.0% 
C) 3.3% 
D) 7.3% 
E) None of the above 
A) 3.7% 
B) 4.0% 
C) 3.3% 
D) 7.3% 
E) None of the above

Question 13

Which of the following is not a risk premium component of bonds?

Accepted Answer

A) Bond quality 
B) Term to maturity of the bond 
C) Indenture provisions 
D) Foreign bond risk 
E) All of the above are risk premium components of bonds. 
A) Bond quality 
B) Term to maturity of the bond 
C) Indenture provisions 
D) Foreign bond risk 
E) All of the above are risk premium components of bonds.

Question 14

Exhibit 18.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually.
-Refer to Exhibit 18.3. Calculate the Macaulay duration for the bond.

Accepted Answer

A) 3.19 years 
B) 3.36 years 
C) 3.57 years 
D) 3.72 years 
E) 3.84 years 
A) 3.19 years 
B) 3.36 years 
C) 3.57 years 
D) 3.72 years 
E) 3.84 years

Question 15

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Accepted Answer

A) Equal to or greater than par plus one year's interest. 
B) Equal to par. 
C) Equal to par less one year's interest. 
D) Less than par. 
E) Five percent over par. 
A) Equal to or greater than par plus one year's interest. 
B) Equal to par. 
C) Equal to par less one year's interest. 
D) Less than par. 
E) Five percent over par.

Question 16

Suppose the current 7 year rate is 8% and the current 6 year rate is 6%. What is the one year forward rate for six years?

Accepted Answer

A) 16.33% 
B) 18.22% 
C) 20.82% 
D) 14.65% 
E) 15.14% 
A) 16.33% 
B) 18.22% 
C) 20.82% 
D) 14.65% 
E) 15.14%

Question 17

The promised yield to maturity calculation assumes that

Accepted Answer

A) All coupon interest payments are reinvested at the current market interest rate for the bond. 
B) All coupon interest payments are reinvested at the coupon interest rate for the bond. 
C) All coupon interest payments are reinvested at short term money market interest rates. 
D) All coupon interest payments are not reinvested. 
E) None of the above 
A) All coupon interest payments are reinvested at the current market interest rate for the bond. 
B) All coupon interest payments are reinvested at the coupon interest rate for the bond. 
C) All coupon interest payments are reinvested at short term money market interest rates. 
D) All coupon interest payments are not reinvested. 
E) None of the above

Question 18

If an investor buys a high coupon bond, and rates then fall, the investor has "locked up" that high yield as a realized yield.

Accepted Answer

A) True 
 B)False

Question 19

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

Accepted Answer

A) True 
 B)False

Question 20

For a given change in yield bond price volatility is directly related to duration.

Accepted Answer

A) True 
 B)False

Exam 18: The Analysis and Valuation of Bonds

Modified duration is determined by making small adjustments to Macaulay duration.

Consider a 10%, 15 year bond that pays interest annually quarterly, and its current price is $1060. What is the promised yield to maturity?

Exhibit 18.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually. -Refer to Exhibit 18.3. Calculate the modified duration for the bond.

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

An interest rate is the price of loanable funds.

If the price before yields changed was $975, what is the resulting price?

Which of the following is not a major risk premium component for bond investors?

Suppose you have a 10%, 20 year bond traded at $1,120. If it is callable in 5 years at $1,150, what is the bond's approximate yield to call? Interest is paid quarterly.

The longer the time to maturity, the greater the percentage change in a bond's price.

Consider a bond with a duration of 6 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

Which duration is computed by discounting flows using the yield to maturity of the bond?

A 15-year bond has a $1,000 par value bond, a 4% coupon and a yield to maturity of 3.3%. Interest is paid annually. The bond's current yield is

Which of the following is not a risk premium component of bonds?

Exhibit 18.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually. -Refer to Exhibit 18.3. Calculate the Macaulay duration for the bond.

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Suppose the current 7 year rate is 8% and the current 6 year rate is 6%. What is the one year forward rate for six years?

The promised yield to maturity calculation assumes that

If an investor buys a high coupon bond, and rates then fall, the investor has "locked up" that high yield as a realized yield.

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

For a given change in yield bond price volatility is directly related to duration.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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