Question 1

Which of the following statements regarding the duration of a coupon bond is false?

Accepted Answer

A) YTM and duration are inversely related. 
B) Coupon rate and duration are inversely related. 
C) Duration is a weighted average time to recovery of all coupon payments. 
D) Duration increases with time to maturity but at a decreasing rate. 
A) YTM and duration are inversely related. 
B) Coupon rate and duration are inversely related. 
C) Duration is a weighted average time to recovery of all coupon payments. 
D) Duration increases with time to maturity but at a decreasing rate.

Question 2

What are the advantages and disadvantages of index funds for an individual bond investor?

Accepted Answer

Many aggressively managed funds do not b

Question 3

Which of the following is not a passive bond strategy?

Accepted Answer

A) A barbell strategy 
B) A bond swap strategy 
C) A buy and hold strategy 
D) An indexing strategy 
A) A barbell strategy 
B) A bond swap strategy 
C) A buy and hold strategy 
D) An indexing strategy

Question 4

Buying a bond (for example,with fixed-rate coupon payments)and simultaneously selling another (for example,with variable rate interest payments)is an example of:

Accepted Answer

A) a bond ladder strategy. 
B) a bond swap. 
C) an interest rate futures transaction. 
D) an immunization strategy. 
A) a bond ladder strategy. 
B) a bond swap. 
C) an interest rate futures transaction. 
D) an immunization strategy.

Question 5

Historically,the yield curve has most often been:

Accepted Answer

A) upward sloping. 
B) downward sloping. 
C) flat. 
D) bell-shaped. 
A) upward sloping. 
B) downward sloping. 
C) flat. 
D) bell-shaped.

Question 6

Why are upward sloping yield curves more consistent with the usual risk-return tradeoff than downward sloping yield curves?

Accepted Answer

Long-term bonds have more inte

Question 7

For a zero coupon bond,duration is the same as time to maturity.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is true regarding investments in bonds?

Accepted Answer

A) Shorter maturity bonds generally return more than longer maturity bonds. 
B) Treasury bonds generally return more than corporate bonds of the same maturity. 
C) Longer maturity bonds generally return more than shorter maturity bonds. 
D) Higher-rated bonds generally return more than lower-rated bonds. 
A) Shorter maturity bonds generally return more than longer maturity bonds. 
B) Treasury bonds generally return more than corporate bonds of the same maturity. 
C) Longer maturity bonds generally return more than shorter maturity bonds. 
D) Higher-rated bonds generally return more than lower-rated bonds.

Question 9

An increase in expected inflation tends to decrease bond prices.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements regarding classical immunization is false?

Accepted Answer

A) It is easy to implement. 
B) It requires frequent rebalancing. 
C) It is not a passive bond strategy. 
D) It faces real-world problems in its implementation. 
A) It is easy to implement. 
B) It requires frequent rebalancing. 
C) It is not a passive bond strategy. 
D) It faces real-world problems in its implementation.

Question 11

The size of yield spreads tends to remain constant over time.

Accepted Answer

A) True 
 B)False

Question 12

If interest rates rise,reinvestment rates rise,whereas bond prices decline.

Accepted Answer

A) True 
 B)False

Question 13

One of the most cost-effective methods of passive bond investing is buying into a bond ETF.

Accepted Answer

A) True 
 B)False

Question 14

Under the ladder approach,bond investors purchase bonds with different maturities in order to gain some protection from default risk.

Accepted Answer

A) True 
 B)False

Question 15

If two coupon bonds are equivalent in all other respects,which will have the higher convexity?

Accepted Answer

A) The bond with the higher coupon. 
B) The bond with the longer maturity. 
C) The bond with the greater yield. 
D) The bond with the lower credit rating. 
A) The bond with the higher coupon. 
B) The bond with the longer maturity. 
C) The bond with the greater yield. 
D) The bond with the lower credit rating.

Question 16

A bond swap involves the simultaneous selling of one bond and buying another.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements concerning yield spreads is not true?

Accepted Answer

A) Yield spreads may be positive or negative. 
B) Yield spreads are often calculated across bond maturities. 
C) Yield spreads are influenced by the level of interest rates in the market. 
D) Yield spreads can change over time. 
A) Yield spreads may be positive or negative. 
B) Yield spreads are often calculated across bond maturities. 
C) Yield spreads are influenced by the level of interest rates in the market. 
D) Yield spreads can change over time.

Question 18

A bond strategy that attempts to immunize the portfolio from interest rate risk is based on the concept of:

Accepted Answer

A) buy and hold. 
B) horizon analysis. 
C) duration. 
D) indexing. 
A) buy and hold. 
B) horizon analysis. 
C) duration. 
D) indexing.

Question 19

Relative to actively-managed bond funds,a major advantage of bond index funds is their:

Accepted Answer

A) higher performance. 
B) ability to shelter income from taxes. 
C) lower expense ratios. 
D) lower duration. 
A) higher performance. 
B) ability to shelter income from taxes. 
C) lower expense ratios. 
D) lower duration.

Question 20

A commercial bank that always invests in short-term bonds in order to meet deposit withdrawals is a good example of a firm following the liquidity preference theory.

Accepted Answer

A) True 
 B)False

Exam 18: Bonds: Analysis and Strategy

Which of the following statements regarding the duration of a coupon bond is false?

What are the advantages and disadvantages of index funds for an individual bond investor?

Which of the following is not a passive bond strategy?

Buying a bond (for example,with fixed-rate coupon payments)and simultaneously selling another (for example,with variable rate interest payments)is an example of:

Historically,the yield curve has most often been:

Why are upward sloping yield curves more consistent with the usual risk-return tradeoff than downward sloping yield curves?

For a zero coupon bond,duration is the same as time to maturity.

Which of the following statements is true regarding investments in bonds?

An increase in expected inflation tends to decrease bond prices.

Which of the following statements regarding classical immunization is false?

The size of yield spreads tends to remain constant over time.

If interest rates rise,reinvestment rates rise,whereas bond prices decline.

One of the most cost-effective methods of passive bond investing is buying into a bond ETF.

Under the ladder approach,bond investors purchase bonds with different maturities in order to gain some protection from default risk.

If two coupon bonds are equivalent in all other respects,which will have the higher convexity?

A bond swap involves the simultaneous selling of one bond and buying another.

Which of the following statements concerning yield spreads is not true?

A bond strategy that attempts to immunize the portfolio from interest rate risk is based on the concept of:

Relative to actively-managed bond funds,a major advantage of bond index funds is their:

A commercial bank that always invests in short-term bonds in order to meet deposit withdrawals is a good example of a firm following the liquidity preference theory.

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