Exam 13: Duration and Reinvestment Concepts

Immunization is the process of measuring bond price sensitivity to interest rate changes.

Immunization protects the portfolio value against upward movement in interest rates but not downward movement in interest rates.

One of the major criticisms of duration analysis is

Immunization is the process of ________ to ensure an outcome.

In general,duration is the number of years,on a future-value basis,that it takes to recover an initial investment in a bond.

The duration on an 8 percent,25-year bond is ______ the duration on a 9 percent,30-year bond.

For a bond selling at par of $1000,when the coupon equals the yield to maturity in the current market,duration then is equal to the bond maturity in years.

You have invested $1,000 in a 12% coupon bond that matures in three years.You are investing the interest income in a fund earning 8%.At the end of three years,what was your annualized rate of return?

Compute the duration for a bond with a 8 percent coupon rate maturing in five years.A discount rate of 10 percent should be applied.

Duration times the reinvestment rate will give the approximate change in bond price for a 1 percent change in interest rates.

Factors which influence the relationship between duration and maturity include all of the following EXCEPT

As the yield to maturity on a bond increases,the duration also increases,because of the effect of present value on duration.

Weighted average life refers to the weighted average life of the payout.

Terminal wealth analysis for a zero coupon bond is irrelevant.

Terminal wealth analysis is the process of measuring the effects of shifting market rates on bond prices.

The duration of a bond is determined by a combination of the maturity date and value,and

Duration is affected primarily by

The value of a bond may be expressed as the sum of

You have invested $1,000 in a 12% coupon bond that matures in three years.You are investing the interest income in a fund earning 8%.At the end of three years,what will be your portfolio sum?

Assume you buy a 20 year,$1000 par value zero-coupon bond that provides a 12 percent yield to maturity.Almost immediately after you buy the bond,yields decrease to 9 percent.What will be the percentage gain on the investment?