Ch11 - Managing Bond Portfolios 1. All other things equal,...

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Managing Bond Portfolios 1. All other things equal, 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, 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
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d. a 10 year zero coupon bond 3. All other things equal, which of the following has the longest duration? a. a 15 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 4. All other things equal, which of the following has the longest duration? a. a 20 year bond with a 10% coupon yielding 10% b. a 20 year bond with a 10% coupon yielding 11% c.
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a 20 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. Which of the following should not consider immunization as a risk management strategy? a. pension fund b. bond index mutual fund
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c. life insurance company d. GIC 7. In a substitution swap, one bond would be exchanged for another bond with nearly identical _______. a. maturity b. coupon c. quality d. all of the above 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
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b. dedication strategy c. duration analysis d. horizon analysis 9. Interest rate risk _________ at a _________ rate as maturity increases. a. increases; increasing b. increases; decreasing c. decreases; increasing d. decreases; decreasing 10. An increase in a bond's yield to maturity results in a price decline that is ________ the price increase resulting from a decrease in yield of equal magnitude.
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a. greater than b. equivalent to c. smaller than d. The answer is indeterminate 11. Interest rate risk increases as a bond's ___________. a. coupon rate increases b. coupon rate decreases c. maturity decreases d. default risk increases
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12. ______________ is an important characteristic of the relationship between bond prices and yields. a. convexity b. concavity c. complexity d. linearity 13. Bond prices are _______ sensitive to changes in yield when the bond is selling at a _______ initial yield to maturity. a. more; lower b. more; higher c. less; lower
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None of the above answers are correct 14. The volume of interest rate swaps increased from almost zero in 1980 to approximately __________ today. a. $100,000,000,000 b. $700,000,000,000 c. $3,000,000,000,000 d. $40,000,000,000,000
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This note was uploaded on 02/22/2012 for the course FINA 3480 taught by Professor Moore during the Spring '11 term at Toledo.

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Ch11 - Managing Bond Portfolios 1. All other things equal,...

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