Compute the duration for the data in this problem using a discount rate of 12%. \[\begin{array} { | c | c | } \hline & \text { Cash } \\ \hline \text { Year, t } & \text { Flow } \\ \hline 1 & 90 \\ \hline 2 & 90 \\ \hline 3 & 90 \\ \hline 3 & 1000 \\ \hline \end{array}\]

A) 3.00 years B) 2.95 years C) 2.85 years D) 2.75 years E) 2.65 years A) 3.00 years B) 2.95 years C) 2.85 years D) 2.75 years E) 2.65 years

A) Always longer than maturity B) Always the same as maturity C) Normally shorter than maturity D) Always shorter than maturity A) Always longer than maturity B) Always the same as maturity C) Normally shorter than maturity D) Always shorter than maturity

A) Positively correlated with interest rates and coupon rates but moves in the opposite direction of maturity B) Negatively correlated with maturity but moves in the same direction as market rates of interest and coupon rates C) Positively correlated with maturity but moves in the opposite direction of market rates of interest and coupon rates D) None of the above A) Positively correlated with interest rates and coupon rates but moves in the opposite direction of maturity B) Negatively correlated with maturity but moves in the same direction as market rates of interest and coupon rates C) Positively correlated with maturity but moves in the opposite direction of market rates of interest and coupon rates D) None of the above

Exam 13: Duration and Reinvestment Concepts

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A 10 percent coupon rate,five-year bond is currently selling to yield 12 percent and is priced at $927.50. a)Recalculate the price of the bond based on a 7 percent yield to maturity and calculate the percentage price change. (use annual compounding) b)If this bond has a duration of 3.40,how would you approximate the change in price of the bond for a 5 percent change in the yield to maturity?

(Essay)

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Question 41

Compute the duration for the data in this problem using a discount rate of 12%. Cash Year, t Flow 1 90 2 90 3 90 3 1000

(Multiple Choice)

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Question 42

When duration of a coupon paying bond is plotted against years to maturity on the X axis,the line

(Multiple Choice)

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Question 43

Duration analysis is subject to the assumption that all interest income can be reinvested at the market rate of interest.

(True/False)

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Question 44

Volatile high interest rates have directly caused more emphasis on duration analysis because

(Multiple Choice)

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Question 45

One of the benefits of zero-coupon bonds is that they lock in a compound rate of return (or reinvestment rate)for the life of the bond if held to maturity.

(True/False)

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Question 46

Duration represents the weighted average life of a bond where the weights are based on the:

(Multiple Choice)

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Question 47

One of the problems with duration is that it often assumes a parallel shift in yield curves.

(True/False)

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Question 48

High coupon bonds will usually have higher durations than low coupon bonds of the same maturity.

(True/False)

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Question 49

Under terminal wealth analysis,the greater the period to maturity

(Multiple Choice)

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Question 50

Under which of the following circumstances would terminal wealth analysis NOT be relevant?

(Multiple Choice)

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Question 51

Duration equals maturity if

(Multiple Choice)

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Question 52

The process of measuring the effect of a shift in market interest rates on the value of an investment is called

(Multiple Choice)

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Question 53

Duration is a useful number because it combines the effects of maturity,coupon and market rates to indicate how the price of the bond will change with a change in interest rates.

(True/False)

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Question 54

What type of bond investor would probably be least concerned about a drop in market interest rates?

(Multiple Choice)

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Question 55

The only difference between simple weighted average life of a bond and duration of a bond is

(Multiple Choice)

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Question 56

Terminal wealth analysis is one way of analyzing the effect of the reinvestment rate risk.

(True/False)

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Question 57

It is possible that a bond with a shorter maturity than another bond may actually have a longer duration and be more sensitive to interest rate changes.

(True/False)

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Question 58

Duration is:

(Multiple Choice)

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Question 59

Duration is

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Question 60

Showing 41 - 60 of 61

Exam 13: Duration and Reinvestment Concepts

Compute the duration for the data in this problem using a discount rate of 12%. Cash Year, t Flow 1 90 2 90 3 90 3 1000

When duration of a coupon paying bond is plotted against years to maturity on the X axis,the line

Duration analysis is subject to the assumption that all interest income can be reinvested at the market rate of interest.

Volatile high interest rates have directly caused more emphasis on duration analysis because

One of the benefits of zero-coupon bonds is that they lock in a compound rate of return (or reinvestment rate)for the life of the bond if held to maturity.

Duration represents the weighted average life of a bond where the weights are based on the:

One of the problems with duration is that it often assumes a parallel shift in yield curves.

High coupon bonds will usually have higher durations than low coupon bonds of the same maturity.

Under terminal wealth analysis,the greater the period to maturity

Under which of the following circumstances would terminal wealth analysis NOT be relevant?

Duration equals maturity if

The process of measuring the effect of a shift in market interest rates on the value of an investment is called

Duration is a useful number because it combines the effects of maturity,coupon and market rates to indicate how the price of the bond will change with a change in interest rates.

What type of bond investor would probably be least concerned about a drop in market interest rates?

The only difference between simple weighted average life of a bond and duration of a bond is

Terminal wealth analysis is one way of analyzing the effect of the reinvestment rate risk.

It is possible that a bond with a shorter maturity than another bond may actually have a longer duration and be more sensitive to interest rate changes.

Duration is:

Duration is

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