Question 1

The larger an FI's absolute leverage adjusted duration gap:

Accepted Answer

A)  the less exposed the FI is to interest rate shocks. 
B)  the more exposed the FI is to interest rate shocks. 
C)  the lower the FI's net worth. 
D)  None of the listed options are correct. 
A)  the less exposed the FI is to interest rate shocks. 
B)  the more exposed the FI is to interest rate shocks. 
C)  the lower the FI's net worth. 
D)  None of the listed options are correct.

Question 2

Duration is defined as:

Accepted Answer

A)  the weighted-average time to maturity of a series of cash flows, using the relative present values of the cash flows as weights. 
B)  the weighted-average present values of a series of cash flows using the timing of the cash flows as weights. 
C)  the standard deviation of the time to maturity of a series of cash flows. 
D)  an asset's or a liability's time to maturity. 
A)  the weighted-average time to maturity of a series of cash flows, using the relative present values of the cash flows as weights. 
B)  the weighted-average present values of a series of cash flows using the timing of the cash flows as weights. 
C)  the standard deviation of the time to maturity of a series of cash flows. 
D)  an asset's or a liability's time to maturity.

Question 3

Consider a consol bond with a required yield to maturity of 9 per cent. What is the consol bond's duration (round to two decimals)?

Accepted Answer

A)  Infinite as the bond has no maturity 
B)  0 years 
C)  9.33 years 
D)  12.11 years 
A)  Infinite as the bond has no maturity 
B)  0 years 
C)  9.33 years 
D)  12.11 years

Question 4

With increasing maturity of a fixed-income asset or liability the asset or liability's duration:

Accepted Answer

A)  increases, but at a decreasing rate. 
B)  decreases. 
C)  increases at an increasing rate. 
D)  increases at a constant rate. 
A)  increases, but at a decreasing rate. 
B)  decreases. 
C)  increases at an increasing rate. 
D)  increases at a constant rate.

Question 5

Consider a security with a face value of $100 000 to be repaid at maturity. The maturity of the security is 3 years. The coupon rate is 9 per cent p.a. and coupon payments are made semi-annually. The current discount rate is 12 per cent p.a. What is the security's price (round your answer to two decimals)?

Accepted Answer

A)  $127 000.00 
B)  $100 000.00 
C)  $76 046.08 
D)  $92 624.01 
A)  $127 000.00 
B)  $100 000.00 
C)  $76 046.08 
D)  $92 624.01

The larger an FI's absolute leverage adjusted duration gap:

Duration is defined as:

Consider a consol bond with a required yield to maturity of 9 per cent. What is the consol bond's duration (round to two decimals)?

With increasing maturity of a fixed-income asset or liability the asset or liability's duration:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 6: Interest Rate Risk Measurement: the Duration Model

The larger an FI's absolute leverage adjusted duration gap:

Duration is defined as:

Consider a consol bond with a required yield to maturity of 9 per cent. What is the consol bond's duration (round to two decimals)?

With increasing maturity of a fixed-income asset or liability the asset or liability's duration:

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters