Question 1

A noncallable bond would be expected to have a higher yield to maturity than a comparable callable bond.

Accepted Answer

A) True 
 B)False

Question 2

A portfolio is said to be immunized if:

Accepted Answer

A) the present value of its cash flows equals the its principal value. 
B) the duration of the portfolio is equal to its maturity. 
C) the present value of its cash flows is greater than its principal value. 
D) the duration of the portfolio is equal to the investor's investment horizon. 
A) the present value of its cash flows equals the its principal value. 
B) the duration of the portfolio is equal to its maturity. 
C) the present value of its cash flows is greater than its principal value. 
D) the duration of the portfolio is equal to the investor's investment horizon.

Question 3

Using its modified duration,the price of a coupon bond is forecasted to change from $990 to $925 due to an increase in interest rates.If the bond's convexity is considered,the new forecasted price of the bond will be:

Accepted Answer

A) higher than $925. 
B) lower than $925. 
C) equal to $925. 
D) Cannot be determined. 
A) higher than $925. 
B) lower than $925. 
C) equal to $925. 
D) Cannot be determined.

Question 4

Convexity is used to correct the approximate percentage change in bond value,calculated using modified duration.

Accepted Answer

A) True 
 B)False

Question 5

Immunization is intended to protect a portfolio against interest rate risk.What should be done?How does it work?

Accepted Answer

The portfolio duration should

Question 6

Immunization is a strategy in which bond investors:

Accepted Answer

A) buy only high-quality bonds. 
B) attempt to avoid default risk. 
C) attempt to avoid call and convertible risk. 
D) attempt to avoid reinvestment and price risk. 
A) buy only high-quality bonds. 
B) attempt to avoid default risk. 
C) attempt to avoid call and convertible risk. 
D) attempt to avoid reinvestment and price risk.

Question 7

Which of the following statements about the bond market is not true?

Accepted Answer

A) Short maturities sacrifice price appreciation opportunities. 
B) Longer maturities have greater price fluctuations. 
C) Short maturities serve to protect the investor when rates are rising. 
D) Long term interest rates are more volatile than short term interest rates. 
A) Short maturities sacrifice price appreciation opportunities. 
B) Longer maturities have greater price fluctuations. 
C) Short maturities serve to protect the investor when rates are rising. 
D) Long term interest rates are more volatile than short term interest rates.

Question 8

Which of the following terms describes a change in investors' preferences away from risky assets towards safer bonds?

Accepted Answer

A) Immunization 
B) Flight to safety 
C) Laddering 
D) Convexity 
A) Immunization 
B) Flight to safety 
C) Laddering 
D) Convexity

Question 9

Which of the following is considered to have the biggest impact on bond yields?

Accepted Answer

A) Economic growth 
B) Business cycles 
C) Inflation 
D) Federal Reserve actions 
A) Economic growth 
B) Business cycles 
C) Inflation 
D) Federal Reserve actions

Question 10

An investor desiring a bond investment that changes as little as possible as interest rates change should seek a bond with long duration rather than a strip.

Accepted Answer

A) True 
 B)False

Question 11

A weaker dollar increases the value of dollar-denominated assets to foreign investors.

Accepted Answer

A) True 
 B)False

Question 12

Bond investors expecting interest rates to rise should shift their portfolios toward:

Accepted Answer

A) shorter term bonds. 
B) longer term bonds. 
C) higher quality bonds. 
D) lower quality bonds. 
A) shorter term bonds. 
B) longer term bonds. 
C) higher quality bonds. 
D) lower quality bonds.

Question 13

What are two passive management strategies?Two active strategies?

Accepted Answer

Passive - buy and hold and ind

Question 14

Holding maturity constant,a decrease in rates will raise bond prices on a percentage basis more than a corresponding increase in rates will lower bond prices.

Accepted Answer

A) True 
 B)False

Question 15

The yield on a small,regional corporate bond is generally higher than the yield on a large,national corporate bond mainly due to:

Accepted Answer

A) differences in coupon rates. 
B) differences in quality. 
C) differences in tax treatments. 
D) differences in marketability. 
A) differences in coupon rates. 
B) differences in quality. 
C) differences in tax treatments. 
D) differences in marketability.

Question 16

Yield spreads were at their widest during the Great Depression.

Accepted Answer

A) True 
 B)False

Question 17

The term structure of interest rates shows the relationship between bond return and time to maturity.

Accepted Answer

A) True 
 B)False

Question 18

A zero-coupon bond has 10-years to maturity and a YTM of 8%.If the YTM instantaneously increases to 9%,what happens to the bond's price and duration?

Accepted Answer

A) The price decreases and the duration increases. 
B) The price increases and the duration decreases. 
C) The price decreases and the duration decreases. 
D) The price decreases and the duration stays the same. 
A) The price decreases and the duration increases. 
B) The price increases and the duration decreases. 
C) The price decreases and the duration decreases. 
D) The price decreases and the duration stays the same.

Question 19

Under a laddering approach,investors mitigate the effects of an interest rate increase by:

Accepted Answer

A) purchasing bonds in two maturity groups,long or short. 
B) purchasing bonds with the same maturity date but with a variety of coupon rates. 
C) purchasing bonds with a variety of maturity dates. 
D) purchasing bonds with a variety of YTMs. 
A) purchasing bonds in two maturity groups,long or short. 
B) purchasing bonds with the same maturity date but with a variety of coupon rates. 
C) purchasing bonds with a variety of maturity dates. 
D) purchasing bonds with a variety of YTMs.

Question 20

The term structure of interest rates shows the relationship between yields of several categories of bonds,such as municipals and corporates,and their maturities.

Accepted Answer

A) True 
 B)False

Exam 18: Bonds: Analysis and Strategy

A noncallable bond would be expected to have a higher yield to maturity than a comparable callable bond.

A portfolio is said to be immunized if:

Using its modified duration,the price of a coupon bond is forecasted to change from $990 to $925 due to an increase in interest rates.If the bond's convexity is considered,the new forecasted price of the bond will be:

Convexity is used to correct the approximate percentage change in bond value,calculated using modified duration.

Immunization is intended to protect a portfolio against interest rate risk.What should be done?How does it work?

Immunization is a strategy in which bond investors:

Which of the following statements about the bond market is not true?

Which of the following terms describes a change in investors' preferences away from risky assets towards safer bonds?

Which of the following is considered to have the biggest impact on bond yields?

An investor desiring a bond investment that changes as little as possible as interest rates change should seek a bond with long duration rather than a strip.

A weaker dollar increases the value of dollar-denominated assets to foreign investors.

Bond investors expecting interest rates to rise should shift their portfolios toward:

What are two passive management strategies?Two active strategies?

Holding maturity constant,a decrease in rates will raise bond prices on a percentage basis more than a corresponding increase in rates will lower bond prices.

The yield on a small,regional corporate bond is generally higher than the yield on a large,national corporate bond mainly due to:

Yield spreads were at their widest during the Great Depression.

The term structure of interest rates shows the relationship between bond return and time to maturity.

A zero-coupon bond has 10-years to maturity and a YTM of 8%.If the YTM instantaneously increases to 9%,what happens to the bond's price and duration?

Under a laddering approach,investors mitigate the effects of an interest rate increase by:

The term structure of interest rates shows the relationship between yields of several categories of bonds,such as municipals and corporates,and their maturities.

Understanding Investments

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Securities Markets and Market Indexes

How Securities Are Traded

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Common Stocks: Analysis and Strategy

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