Exam 9: Interest Rate Risk II

Consider a one-year maturity, $100,000 face value bond that pays a 6 percent fixed coupon annually. If the bond is selling at par, what is the percentage price change for the bond if interest rates increase 50 basis points from 6 percent?

The error from using duration to estimate the new price of a fixed-income security will be less as the amount of convexity increases.

For a given maturity fixed-income asset, duration decreases as the market yield increases.

The numbers provided are in millions of dollars and reflect market values: What is the weighted average duration of the liabilities of the FI?

Duration is related to maturity in a nonlinear manner through the current yield to maturity of the asset.

What is the duration of an 8 percent annual payment two-year note that currently sells at par?

Perfect matching of the maturities of the assets and liabilities will always achieve perfect immunization for the equity holders of an FI against interest rate risk.

Calculate the modified duration of a two-year corporate loan paying 6 percent interest annually. The $40,000,000 loan is 100 percent amortizing, and the current yield is 9 percent annually.

U.S. Treasury quotes from the WSJ on Oct. 15, 2003: What is the duration of the above Treasury note? Use the asked price to calculate the duration. Recall that Treasuries pay interest semiannually.

A bond is scheduled to mature in five years. Its coupon rate is 9 percent with interest paid annually. This $1,000 par value bond carries a yield to maturity of 10 percent. What is the duration of the bond?

Duration is the weighted-average present value of the cash flows using the timing of the cash flows as weights.

First Duration Bank has the following assets and liabilities on its balance sheet What is the duration of the commercial loans?

Which of the following statements about leverage adjusted duration gap is true?

Duration is related to maturity in a linear manner through the interest rate of the asset.

Based on an 18-month, 8 percent (semiannual) coupon Treasury note selling at par. What is the duration of this Treasury note?

The numbers provided by Fourth Bank of Duration are in thousands of dollars. Notes: All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Term deposits have a 1-year duration and the Interbank deposits duration is 0.003 years. Fourth Bank of Duration assigns a duration of zero (0) to demand deposits. What is the duration of the bank's Treasury portfolio?