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Exam 11: Managing Bond Portfolios

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Question 31

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An 8%,30-year bond has a yield-to-maturity of 10% and a modified duration of 8.0 years.If the market yield drops by 15 basis points,there will be a __________ in the bond's price.

A) 1.15% decrease
B) 1.20% increase
C) 1.53% increase
D) 2.43% decrease

E) A) and D)
F) B) and D)

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Question 32

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A bond currently has a price of $1,050.The yield on the bond is 6.00%.If the yield increases 25 basis points,the price of the bond will go down to $1,030.The duration of this bond is ____ years.

A) 7.46
B) 8.08
C) 9.02
D) 10.11

E) None of the above
F) A) and D)

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Question 33

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Convexity implies that duration predictions _______. I.underestimate the % increase in bond price when the yield falls II.underestimate the % decrease in bond price when the yield rises III.overestimates the % increase in bond price when the yield falls IV.overestimates the % decrease in bond price when the yield rises

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 6 years and continue to match your investment horizon and duration throughout your holding period.Your realized rate of return will be the same as the promised yield on the bond if I.interest rates increase II.interest rates stay the same III.interest rates fall

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

Convexity of a bond is ___________.

When interest rates increase,the duration of a 20-year bond selling at a premium _________.

A 20 year maturity corporate bond has a 6.5% coupon rate (the coupons are paid annually) .The bond currently sells for $925.50.A bond market analyst forecasts that in five years yield rates on these bonds will be at 7.0%.You believe that you will be able to reinvest the coupons earned over the next five years at a 6% rate of return.What is your expected annual compound rate of return if you plan on selling the bond in five years?

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: -The modified duration for the Steel Pier bond is ______.

Steel Pier Company has issued bonds that pay semiannually with the following characteristics: -If the maturity of the bond was less than 10 years,the modified duration would be _____ compared to the original modified duration.

Which of the following is not a type of bond swap used in active portfolio management?

Banks and other financial institutions can best manage interest rate risk by _____________.

The duration is independent of the coupon rate only for which one of the following?

In the context of a bond portfolio,price risk and reinvestment rate risk exactly cancel out at a time horizon equal to ____.

Target date immunization would primarily be of interest to _________.

A portfolio manager sells treasury bonds and buys corporate bonds because the spread between corporate and Treasury bond yields is higher than its historical average.This is an example of __________ swap.

A bond has a maturity of 12 years,a duration of 9.5 years at a promised yield rate of 8%.What is the bond's modified duration?

An investor who expects declining interest rates would maximize their capital gain by purchasing a bond that has a ___ coupon and a ___ term to maturity.

If you choose a zero coupon bond with a maturity that matches your investment horizon which of the following statements is/are correct? I.You will have no interest rate risk on this bond. II.Absent default,you can be sure you will earn the promised yield rate. III.The duration of your bond is less than the time to your investment horizon.

If an investment returns a higher percentage of your money back sooner it will ______.