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Exam 11: Managing Bond Portfolios

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Question 21

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A perpetuity pays $100 each and every year forever.The duration of this perpetuity will be __________ if its yield is 9%.

A) 7
B) 9
C) 9.39
D) 12.11

E) A) and D)
F) C) and D)

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Question 22

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A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%. -The modified duration of this bond is ______ years.

A) 4.00
B) 3.56
C) 3.36
D) 3.05

E) A) and C)
F) A) and B)

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Question 23

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The duration of a 5-year zero coupon bond is ____ years.

Where Y = yield to maturity,the duration of a perpetuity would be _________.

A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000.Its yield to maturity is 10%.Over the upcoming year,you expect interest rates to decline and that the yield to maturity on this bond will only be 8% a year from now.Using horizon analysis,the return you expect to earn by holding this bond over the upcoming year is _________.

Compute the modified duration of a 9% coupon,3-year corporate bond with a yield to maturity of 12%.

A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It matures in four years. Its yield to maturity is currently 6%. -The duration of this bond is _______ years.

A bank has an average duration of its liabilities equal to 2 years.The bank's average duration of its assets is 3.5 years.The bank's market value of equity is at risk if _______________________.

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 4 years.Your realized rate of return will be larger than the promised yield on the bond if ___________________.

A bond's price volatility _________ at a/an _________ rate as maturity increases.

The duration rule always ________ the value of a bond following a change in its yield.

Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive. I.8% coupon,noncallable 20 year maturity,par bond II.9% coupon,currently callable 20 year maturity,premium bond III.Zero coupon,30 year maturity bond

A bond portfolio manager notices a hump in the yield curve at the five year point.How might a bond manager take advantage of this event?

Duration is a concept that is useful in assessing a bond's _________.

A fixed income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 5% per year over the next 4 years.The portfolio is currently worth $10 million.One year later interest rates are at 6%.What is the portfolio value trigger point at this time that would require him to immunize the portfolio?

The exchange of one bond for a bond with similar attributes but more attractively priced is called ______________.

Which one of the following statements correctly describes the weights used in the Macaulay duration calculation? The weight in year t is equal to ____________.

A portfolio manager believes interest rates will drop and decides to sell short duration bonds and buy long duration bonds.This is an example of __________ swap.

The duration of a perpetuity varies _______ with interest rates.

All other things equal,a bond's duration is _________.