Question 1

The interest rate risk of a fixed-rate bond with an embedded call option is best measured by:

Accepted Answer

A)  effective duration. 
B)  modified duration. 
C)  Macaulay duration. 
A)  effective duration. 
B)  modified duration. 
C)  Macaulay duration.

Question 2

Using the information below, which bond has the greatest money duration per 100 of par value assuming annual coupon payments and no accrued interest? $\begin{array} { l r c c c c } 
\hline \text { Bond } & \begin{array} { c } 
\text { Time-to- } \
\text { Maturity }
\end{array} & \begin{array} { c } 
\text { Price Per } 100 \
\text { of Par Value }
\end{array} & \text { Coupon Rate } & \begin{array} { c } 
\text { Yield-to- } \
\text { Maturity }
\end{array} & \begin{array} { c } 
\text { Modified } \
\text { Duration }
\end{array} \
\hline \text { A } & 6 \text { years } & 85.00 & 2.00 \% & 4.95 \% & 5.42 \
\text { B } & 10 \text { years } & 80.00 & 2.40 \% & 4.99 \% & 8.44 \
\text { C } & 9 \text { years } & 85.78 & 3.00 \% & 5.00 \% & 7.54 \
\hline
\end{array}$

Accepted Answer

A)  bond a 
B)  bond b 
C)  bond C 
A)  bond a 
B)  bond b 
C)  bond C

Question 3

Which of the following statements about Macaulay duration is correct?

Accepted Answer

A)  a bond's coupon rate and Macaulay duration are positively related. 
B)  a bond's Macaulay duration is inversely related to its yield-to-maturity. 
C)  The Macaulay duration of a zero-coupon bond is less than its time-to-maturity. 
A)  a bond's coupon rate and Macaulay duration are positively related. 
B)  a bond's Macaulay duration is inversely related to its yield-to-maturity. 
C)  The Macaulay duration of a zero-coupon bond is less than its time-to-maturity.

Question 4

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.
-The capital gain/loss per 100 of par value resulting from the sale of the bond at the end of the five-year holding period is closest to a:

Accepted Answer

A)  loss of 8.45. 
B)  loss of 3.31. 
C)  gain of 2.75. 
A)  loss of 8.45. 
B)  loss of 3.31. 
C)  gain of 2.75.

Question 5

Which of the following statements relating to yield volatility is most accurate? if the term structure of yield volatility is downward sloping, then:

Accepted Answer

A)  short-term rates are higher than long-term rates. 
B)  long-term yields are more stable than short-term yields. 
C)  short-term bonds will always experience greater price fluctuation than long-term bonds. 
A)  short-term rates are higher than long-term rates. 
B)  long-term yields are more stable than short-term yields. 
C)  short-term bonds will always experience greater price fluctuation than long-term bonds.

Question 6

a Canadian pension fund manager seeks to measure the sensitivity of her pension lia- bilities to market interest rate changes. The manager determines the present value of the Liabilities under three interest rate scenarios: a base rate of 7%, a 100 basis point increase In rates up to 8%, and a 100 basis point drop in rates down to 6%. The results of the Manager's analysis are presented below: $\begin{array} { l c } 
\hline\text { Interest Rate Assumption } & \text { Present Value of Liabilities } \
\hline 6 \% & \text { CAD510.1 million } \
7 \% & \text { CAD455.4 million } \
8 \% & \text { CAD373.6 million } \
\hline
\end{array}$ The effective duration of the pension fund's liabilities is closest to:

Accepted Answer

A)  1.49. 
B)  14.99. 
C)  29.97. 
A)  1.49. 
B)  14.99. 
C)  29.97.

Question 7

a bond has an annual modified duration of 7.020 and annual convexity of 65.180. if the bond's yield-to-maturity decreases by 25 basis points, the expected percentage price Change is closest to:

Accepted Answer

A)  1.73%. 
B)  1.76%. 
C)  1.78%. 
A)  1.73%. 
B)  1.76%. 
C)  1.78%.

The interest rate risk of a fixed-rate bond with an embedded call option is best measured by:

Which of the following statements about Macaulay duration is correct?

Which of the following statements relating to yield volatility is most accurate? if the term structure of yield volatility is downward sloping, then:

a bond has an annual modified duration of 7.020 and annual convexity of 65.180. if the bond's yield-to-maturity decreases by 25 basis points, the expected percentage price Change is closest to:

Fixed-Income Securities: Defining Elements

Fixed-Income Markets: Issuance, Trading, and Funding

Introduction to Fixed-Income Valuation

Introduction to Asset-Backed Securities

Fundamentals of Credit Analysis

The Term Structure and Interest Rate Dynamics

The Arbitrage-Free Valuation Framework

Valuation and Analysis of Bonds With Embedded Options

Credit Analysis Models

Credit Default Swaps

Overview of Fixed-Income Portfolio Management

Liability-Driven and Index-Based Strategies

Yield Curve Strategies

Fixed-Income Active Management: Credit Strategies

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Exam 5: Understanding Fixed Income Risk and Return

The interest rate risk of a fixed-rate bond with an embedded call option is best measured by:

Which of the following statements about Macaulay duration is correct?

Which of the following statements relating to yield volatility is most accurate? if the term structure of yield volatility is downward sloping, then:

a bond has an annual modified duration of 7.020 and annual convexity of 65.180. if the bond's yield-to-maturity decreases by 25 basis points, the expected percentage price Change is closest to:

Fixed-Income Securities: Defining Elements

Fixed-Income Markets: Issuance, Trading, and Funding

Introduction to Fixed-Income Valuation

Introduction to Asset-Backed Securities

Fundamentals of Credit Analysis

The Term Structure and Interest Rate Dynamics

The Arbitrage-Free Valuation Framework

Valuation and Analysis of Bonds With Embedded Options

Credit Analysis Models

Credit Default Swaps

Overview of Fixed-Income Portfolio Management

Liability-Driven and Index-Based Strategies

Yield Curve Strategies

Fixed-Income Active Management: Credit Strategies

Filters