All of the questions are driven from (Investments (McGraw-Hill/Irwin Series in Finance, Insurance, and Real Est).
1. Ceteris paribus, the price and yield on a bond are
- positively related.
- negatively related.
- sometimes positively and sometimes negatively related.
- not related.
- indefinitely related.
2. A 9-year bond has a yield of 7.5% and a duration of 7.295 years. If the market yield changes by 100 basis points, what is the percentage change in the bonds price? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
The percentage change in the bond's price is______%.
3. Find the duration of a 8% coupon bond making annual coupon payments if it has 3 years until maturity and has a yield to maturity of 8%. What is the duration if the yield to maturity is 10%? Note: The face value of the bond is $1.000 (Do not round intermediate calculations. Round your answers to 3 decimal places.)
Duration
8% YTM years
10% YTM years
4. Find the duration of a 5.8% coupon bond making semiannually coupon payments if it has 3 years until maturity and has a yield to maturity of 5.8%. What is the duration if the yield to maturity is 8.0%? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Duration
5.8% YTM years
8.0% YTM years
5. You predict that interest rates are about to fall. Which bond will give you the highest capital gain?
- Low coupon, long maturity
- High coupon. short maturity
- High coupon, long maturity
- Zero coupon, long maturity
6. The duration of a bond is a function of the bond's
- coupon rate.
- yield to maturity.
- time to maturity.
- All of the options
- None of the options
7. Ceteris paribus, the duration of a bond is positively correlated with the bond's
- time to maturity.
- coupon rate.
- yield to maturity.
- All of the options
- None of the options
8. Ceteris paribus, the duration of a bond is negatively correlated with the bond's
- time to maturity.
- coupon rate.
- yield to maturity.
- coupon rate and yield to maturity.
- None of the options
9. Given the time to maturity, the duration of a zero-coupon bond is higher when the discount rate is m higher.
- lower.
- equal to the risk-free rate.
- the bond's duration is independent of the discount rate.
- None of the options
10. Which of the following two bonds is more price sensitive to changes in interest rates?
1) A par value bond, X, with a 5-year-to-maturity and a 10% coupon rate.
2) A zero-coupon bond, Y, with a 5-year-to-maturity and a 10% yield to maturity.
- Bond X because of the higher yield to maturity.
- Bond X because of the longer time to maturity.
- Bond Y because of the longer duration.
- Both have the same sensitivity because both have the same yield to maturity.
- None of the options
11. Holding other factors constant, which one of the following bonds has the smallest price volatility?
- 5-year. 0% coupon bond
- 5-year.12% coupon bond
- 5 year,14% coupon bond
- 5-year. 10% coupon bond
12. Cannot tell from the information given The duration of a 5-year zero-coupon bond is
- smaller than 5.
- larger than 5.
- equal to 5.
- equal to that of a 5-year 10% coupon bond.
- None of the options
13. Which one of the following par value 12% coupon bonds experiences a price change of $23 when the market yield changes by 50 basis points?
- The bond with a duration of 6 years
- The bond with a duration of 5 years
- The bond with a duration of 2.7 years
- The bond with a duration of 5.15 years
14. The duration of a coupon bond
- does not change after the bond is issued.
- can accurately predict the price change of the bond for any interest rate change.
- will decrease as the yield to maturity decreases.
- All of the options are true.
- None of the options is true.
15. When interest rates decline, the duration of a 10-year bond selling at a premium
- increases.
- decreases.
- remains the same.
- increases at first, then declines.
- decreases at first, then increases.
16. An 8%, 30-year corporate bond was recently being priced to yield 10%. The Macaulay duration for the bond is 10.20 years. Given this information, the bond's modified duration would be
- 8.05.
- 9.44.
- 9.27.
- 11.22.
- None of the options
17. The term structure of interest rates is
- the relationship between the rates of interest on all securities.
- the relationship between the interest rate on a security and its time to maturity.
- the relationship between the yield on a bond and its default rate.
- All of the options
- None of the options
18. An inverted yield curve implies that
- long-term interest rates are lower than short-term interest rates.
- long-term interest rates are higher than short-term interest rates.
- long-term interest rates are the same as short-term interest rates.
- intermediate term interest rates are higher than either short- or long-term interest rates.
- None of the options
19. An upward sloping yield curve is a(n) yield curve.
- normal
- humped
- inverted
- flat
- None of the options
20. Which of the following combinations will result in a sharply increasing yield curve?
- Increasing future expected short rates and increasing liquidity premiums
- Decreasing future expected short rates and increasing liquidity premiums
- Increasing future expected short rates and decreasing liquidity premiums
- Increasing future expected short rates and constant liquidity premiums
- Constant future expected short rates and increasing liquidity premiums