Exam 13: Duration and Reinvestment Concepts

For two bonds with equal coupons,duration would be higher for the bond with the shortest maturity.

Zero-coupon bonds are said to "lock in" a particular reinvestment rate

A terminal wealth table generates the ending value of the investment at the end of the year,assuming that the bond

A zero-coupon bond has a duration equal to its maturity.

The duration of a 20-year,$1,000 bond at a COUPON rate of 8 percent is _________ the duration of an identical bond at a coupon rate of 6 percent.

As the maturity or duration of a bond increases,the impact on price of any changes in interest rates increases at a decreasing rate.

You buy a zero-coupon bond for $250.00 and 10 years later sell it for $591.84.What annualized rate of return did you earn?

In order to choose the right international bonds for their portfolios,international bond managers should have

Macaulay duration is a bond's weighted average life based on present value of cash flows.

The duration of a ten year 10 percent $1,000 bond at a market rate of 6 percent is exactly equal to the duration of the same bond at a 14 percent market rate.

For all bonds of equal risk,the bond that had the greatest duration and therefore the greatest price sensitivity is:

You are considering the purchase of two $1000 bonds,both issued by Tranig Corp.Your expectation is that interest rates will drop and you want to buy the bond which provides the maximum capital gains potential.The first Tranig bond has a coupon rate of 6 percent with five years to maturity,while the second has a coupon rate of 9 percent and comes due six years from now.If market rates of interest are 8 percent for both bonds,which bond has the best price potential? (Use duration to answer the question.)

The duration of a 40-year,$1,000 bond at a market rate of 4 percent is _________ the duration of an identical bond at a market rate of 6 percent.

There is an inverse relationship between interest rates and bond values,and between the amount of coupon payments and weighted average life.

Duration will not help international bond managers choose bonds for their portfolios because of the foreign exchange risk.

The highest duration and maximum price sensitivity relative to years to maturity are produced by

Duration is used primarily as a measure of

The duration of a 20-year zero coupon bond is equal to the maturity regardless of the market rate.

The actual yield to maturity an investor receives becomes more of a function of the reinvestment rate the shorter the maturity of the bond.

Weighted average life is the most representative value for effective bond life.