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Multiple Choice Questions 1.All other things equal (YTM = 10%), which

Question : Multiple Choice Questions 1.All other things equal (YTM = 10%), which : 1249520

 

Multiple Choice Questions
 

1.All other things equal (YTM = 10%), which of the following has the longest duration? 
 
 

A.A 30-year bond with a 10% coupon

B.A 20-year bond with a 9% coupon

C.A 20-year bond with a 7% coupon

D.A 10-year zero-coupon bond

2.All other things equal(YTM = 10%), which of the following has the shortest duration? 
 
 

A.A 30-year bond with a 10% coupon

B.A 20-year bond with a 9% coupon

C.A 20-year bond with a 7% coupon

D.A 10-year zero-coupon bond

3.A pension fund must pay out $1 million next year, $2 million the following year, and then $3 million the year after that. If the discount rate is 8%, what is the duration of this set of payments? 
 
 

A.2 years

B.2.15 years

C.2.29 years

D.2.53 years

4.All other things equal, which of the following has the longest duration? 
 
 

A.A 21-year bond with a 10% coupon yielding 10%

B.A 20-year bond with a 10% coupon yielding 11%

C.A 21-year zero-coupon bond yielding 10%

D.A 20-year zero-coupon bond yielding 11%

5.The duration of a perpetuity varies _______ with interest rates. 
 
 

A.directly

B.inversely

C.convexly

D.randomly

6.Because of convexity, when interest rates change, the actual bond price will ____________ the bond price predicted by duration. 
 
 

A.always be higher than

B.sometimes be higher than

C.always be lower than

D.sometimes be lower than

7.You find a 5-year AA Xerox bond priced to yield 6%. You find a similar-risk 5-year Canon bond priced to yield 6.5%. If you expect interest rates to rise, which of the following should you do? 
 
 

A.Short the Canon bond, and buy the Xerox bond.

B.Buy the Canon bond, and short the Xerox bond.

C.Short both the Canon bond and the Xerox bond.

D.Buy both the Canon bond and the Xerox bond.

8.A forecast of bond returns based largely on a prediction of the yield curve at the end of the investment horizon is called a _________. 
 
 

A.contingent immunization

B.dedication strategy

C.duration analysis

D.horizon analysis

9.A bond's price volatility _________ at _________ rate as maturity increases. 
 
 

A.increases; an increasing

B.increases; a decreasing

C.decreases; an increasing

D.decreases; a decreasing

10.As a result of bond convexity, an increase in a bond's price when yield to maturity falls is ________ the price decrease resulting from an increase in yield of equal magnitude. 
 
 

A.greater than

B.equivalent to

C.smaller than

D.The answer cannot be determined from the information given.

 

 

 

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