Exam 5: Understanding Fixed Income Risk and Return

The following information relates to Problems an investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. after the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. assume that interest rates remain unchanged at 8% over the five-year holding period. -Per 100 of par value, the future value of the reinvested coupon payments at the end of the holding period is closest to:

assuming no change in the credit risk of a bond, the presence of an embedded put option:

an investor purchases an annual coupon bond with a 6% coupon rate and exactly 20 years remaining until maturity at a price equal to par value. The investor's investment horizon is Eight years. The approximate modified duration of the bond is 11.470 years. The duration Gap at the time of purchase is closest to:

Which of the following is most appropriate for measuring a bond's sensitivity to shaping risk?

The "second-order" effect on a bond's percentage price change given a change in yield-to-maturity can be best described as:

an investor buys a 6% annual payment bond with three years to maturity. The bond has a yield-to-maturity of 8% and is currently priced at 94.845806 per 100 of par. The bond's Macaulay duration is closest to:

a "buy-and-hold" investor purchases a fixed-rate bond at a discount and holds the securi- ty until it matures. Which of the following sources of return is least likely to contribute to The investor's total return over the investment horizon, assuming all payments are made as Scheduled?

an investor buys a three-year bond with a 5% coupon rate paid annually. The bond, with a yield-to-maturity of 3%, is purchased at a price of 105.657223 per 100 of par value. Assuming a 5-basis point change in yield-to-maturity, the bond's approximate modified Duration is closest to:

an investor purchases a bond at a price above par value. two years later, the investor sells the bond. The resulting capital gain or loss is measured by comparing the price at which The bond is sold to the:

a bond portfolio consists of the following three fixed-rate bonds. assume annual coupon payments and no accrued interest on the bonds. Prices are per 100 of par value. Bond Maturity Market Value Price Coupon Yield-to- Maturity Modified Duration A 6 years 170,000 85.0000 2.00\% 4.95\% 5.42 B 10 years 120,000 80.0000 2.40\% 4.99\% 8.44 C 15 years 100,000 100.0000 5.00\% 5.00\% 10.38 The bond portfolio's modified duration is closest to:

a bond has an annual modified duration of 7.140 and annual convexity of 66.200. The bond's yield-to-maturity is expected to increase by 50 basis points. The expected percent-Age price change is closest to:

a bond with exactly nine years remaining until maturity offers a 3% coupon rate with annual coupons. The bond, with a yield-to-maturity of 5%, is priced at 85.784357 per 100 of par value. The estimated price value of a basis point for the bond is closest to:

Which of the following statements about duration is correct? a bond's:

When the investor's investment horizon is less than the Macaulay duration of the bond she owns:

The holding period for a bond at which the coupon reinvestment risk offsets the market price risk is best approximated by:

a limitation of calculating a bond portfolio's duration as the weighted average of the yield durations of the individual bonds that compose the portfolio is that it:

a manufacturing company receives a ratings upgrade and the price increases on its fixed- rate bond. The price increase was most likely caused by a(n):

Which of the following sources of return is most likely exposed to interest rate risk for an investor of a fixed-rate bond who holds the bond until maturity?

The following information relates to Problems an investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. after the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. assume that interest rates remain unchanged at 8% over the five-year holding period. -assuming that all coupons are reinvested over the holding period, the investor's five-year horizon yield is closest to:

a bond is currently trading for 98.722 per 100 of par value. if the bond's yield-to-matu- rity (YtM) rises by 10 basis points, the bond's full price is expected to fall to 98.669. if The bond's YtM decreases by 10 basis points, the bond's full price is expected to increase To 98.782. The bond's approximate convexity is closest to: