Fixed Income Chapter 7

# Fixed Income Chapter 7 - closest to Duration Convexity a...

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Chapter 7 1) Which of the following statements best describes the concept of negative convexity in bond prices? a. As interest rates fall, the bond’s prices increase at a decreasing rate. b. As interest rates fall, the bond’s prices increase at an increasing rate. c. As interest rates rise, the bond’s prices approaches a minimum value d. As interest rates rise, the bond’s prices decreases at an increasing rate. 2) An investor owns \$15 million face of the 4.65% semiannual pay Portage Health Authority bonds. The bonds have exactly 17 years to maturity and are currently priced to yield 4.39%. Using the full valuation approach, the interest rate exposure (in percent of value) for this bond position, given a 75 basis point increase in required yield is closest to: a. -7.927% b. -8.344% c. 8.344% d. 7.927% 3) An analyst is estimating the interest rate risk of a 14% semiannual pay coupon with six years to maturity. The bond is currently trading at par. The effective duration and effective convexity of the bond for a 25 basis point change in yield is

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Unformatted text preview: closest to: Duration Convexity a. 3.970 11.6 b. 3.74 11.6 c. 3.97 10.4 d. 3.74 10.4 4) An investor is analyzing at a bond that has an effective duration of 10.5 and a convexity of 97.3. Using both of these measures, the percentage change in price for this bond, given market yields are expected to decline by 200 basis points, is closest to: a. 18.37% b. 20.04% c. 22.23% d. 24.89% 5) A corporate bond with an 8% annual pay coupon matures in exactly 12 years. The bond is currently yielding 6.8% and is currently callable at a price of 112. The effective duration and convexity of this bond for a 50 basis point change in rates are closest to: Duration Convexity a. 5.95 41.21 b. 5.95-327.47 c. 7.80 41.21 d. 7.80-327.47 6) A 10 year semiannual pay bond with an 8% coupon is currently selling at par. The price value of a basis point for this bond is closest to: a. \$0.055 b. \$0.068 c. \$0.076 d. \$.136...
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Fixed Income Chapter 7 - closest to Duration Convexity a...

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