Fixed_Income Chapter 2

# 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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## This note was uploaded on 11/06/2010 for the course ECON Econ taught by Professor Liasa during the Spring '10 term at University of San Francisco.

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

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