Fixed_Income Chapter 2 - 4.88 d. 2.50 5) Which of the...

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Chapter 2 – Risk Associated with Investing in Bonds 1) A bond with a 7.3% yield has duration of 5.4 and is trading at $985.00. If the yield decreases to 7.1%, the new bond price is closest to: a. %974.40 b. $1,038.30 c. $995.60 d. $1,091.40 2) If interest rate volatility increases, which of the following bonds will experience a price decrease? a. A callable bond b. A potable bond c. A zero-coupon bond d. An option free, 4.9% coupon bond 3) A non-callable, AA-rated, 5 year zero-coupon bond with a yield of 6% has all of the following except: a. Interest rate risk b. Inflation risk c. Reinvestment risk d. Default risk 4) The current price of a bond is 102.50. If interest rates change by 0.5%, the value of the bond price changes by 2.50. What is the duration of the bond? a. 5.00 b. 2.44 c.
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Unformatted text preview: 4.88 d. 2.50 5) Which of the following bonds has the greatest interest rate risk? a. A 5% 10-year callable bond yielding 4% b. A 5% 10-year putable bond yielding 6% c. A 5% 10-year option free bond yielding 4% d. A 5% 10-year option free bond yielding 6% 6) A floating rate security will have the greatest duration: a. The day before the reset date b. The day after the reset date c. Just prior to maturity because it has the largest cash flow d. Never floating rate securities have a duration of zero 7) The duration of a bond is 5.47, and its current price is $986.30. Which of the following is the best estimate of the bond price change if interest rates increase by 2%? a.-$109.40 b.-$107.90 c. $107.90 d. $109.40...
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Fixed_Income Chapter 2 - 4.88 d. 2.50 5) Which of the...

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