16 - 1INCORRECT Thedurationofabondisafunctionofthebond's A)...

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1 INCORRECT The duration of a bond is a function of the bond's A) coupon rate. B) time to maturity. C) yield to maturity. D) all of the above E) none of the above Feedback: Duration is calculated by discounting the bond's cash flows at the bond's yield to maturity and, except for zero-coupon bonds, is  always less than time to maturity. 2 INCORRECT The "modified duration" used by practitioners is equal to the Macaulay duration A) times the change in interest rate. B) times (one plus the bond's yield to maturity). C) divided by (one plus the bond's yield to maturity). D) divided by (one minus the bond's yield to maturity). E) none of the above Feedback: The "modified duration" used by practitioners is equal to the Macaulay duration divided by (one plus the bond's yield to  maturity). D* = D/(1 + y). 3 INCORRECT The interest-rate risk of a bond is A) the risk related to the possibility of bankruptcy of the  bond's issuer. B) the risk that arises from the uncertainty of the bond's  return caused by changes in interest rates. C) the unsystematic risk caused by factors unique in the  bond. D) A and B above. E) A, B, and C above. Feedback: The interest-rate risk of a bond is the risk that arises from the uncertainty of the bond's return caused by changes in interest  rates. Changing interest rates change the bond's return, both in terms of the price of the bond and the reinvestment of coupon payments.
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This note was uploaded on 03/06/2012 for the course FINANCE 5700 taught by Professor Bob during the Spring '12 term at websteruniv.edu.

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16 - 1INCORRECT Thedurationofabondisafunctionofthebond's A)...

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