Question 1

Convexity is defined as:

Accepted Answer

A) the degree of curvature of the price-yield curve around some maturity level. 
B) the degree of curvature of the price-yield curve around some price level. 
C) the degree of curvature of the price-yield curve around some interest rate level. 
D) None of the listed options are correct. 
A) the degree of curvature of the price-yield curve around some maturity level. 
B) the degree of curvature of the price-yield curve around some price level. 
C) the degree of curvature of the price-yield curve around some interest rate level. 
D) None of the listed options are correct.

Question 2

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 3

When does 'duration' become a less accurate predictor of expected change in security prices?

Accepted Answer

A) As interest rate shocks increase in size. 
B) As interest rate shocks decrease in size. 
C) When maturity distributions of an FI's assets and liabilities are considered. 
D) As inflation decreases. 
A) As interest rate shocks increase in size. 
B) As interest rate shocks decrease in size. 
C) When maturity distributions of an FI's assets and liabilities are considered. 
D) As inflation decreases.

Question 4

Which of the following statements are incorrect?

Accepted Answer

A) Convexity is a desirable effect to a portfolio manager because it is easy to measure and price. 
B) All fixed-income assets exhibit convexity in their price-yield relationships. 
C) The greater is convexity, the more insurance a portfolio manager has against interest rate increases and the greater potential gain from rate decreases. 
D) The fact that the capital gain effect for rate decreases is greater than the capital loss effect for rate increases is caused by convexity in the yield-price relationship. 
A) Convexity is a desirable effect to a portfolio manager because it is easy to measure and price. 
B) All fixed-income assets exhibit convexity in their price-yield relationships. 
C) The greater is convexity, the more insurance a portfolio manager has against interest rate increases and the greater potential gain from rate decreases. 
D) The fact that the capital gain effect for rate decreases is greater than the capital loss effect for rate increases is caused by convexity in the yield-price relationship.

Convexity 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)?

When does 'duration' become a less accurate predictor of expected change in security prices?

Which of the following statements are incorrect?

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

Convexity 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)?

When does 'duration' become a less accurate predictor of expected change in security prices?

Which of the following statements are incorrect?

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