# Quiz 19: Bond Portfolio Management Strategies

Anthropology

Q 1Q 1

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-A bond portfolio is immunized from interest rate risk if the modified duration of the portfolio is always equal to the desired investment horizon.

Free

True False

True

Q 2Q 2

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-Interest rate anticipation is the most conservative management strategy.

Free

True False

False

Q 3Q 3

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-In valuation analysis, undervalued bonds are bonds where the expected YTMs are lower than the prevailing YTM.

Free

True False

True

Q 4Q 4

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-A bond swap involves liquidating a current bond position, and later investing in a similar issue under more favorable conditions.

Free

True False

Q 5Q 5

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-A pure yield pickup swap involves a switch from a low-coupon bond to a higher-coupon bond of similar quality and maturity.

Free

True False

Q 6Q 6

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-A substitution swap relies heavily on interest rate expectations.

Free

True False

Q 7Q 7

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-When applying active management techniques to a global portfolio the additional concern is expectations regarding exchange rates between countries.

Free

True False

Q 8Q 8

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-The bond management strategy intended to eliminate interest rate risk is immunization.

Free

True False

Q 9Q 9

Exhibit 20.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
-A portfolio of bonds is immunized from interest rate risk if the duration of the portfolio is always equal to the desired investment horizon.

Free

True False

Free

True False

Q 11Q 11

In a buy-and-hold strategy, bonds are purchased in light of the investor's objectives and constraints and then held until maturity.

Free

True False

Q 12Q 12

Indexing is an active portfolio management strategy that seeks to copy the composition and performance of a selected market index.

Free

True False

Q 13Q 13

Interest rate anticipation is one of the matched funding techniques that matches anticipated interest rates with the required rates on a portfolio.

Free

True False

Free

True False

Free

True False

Q 16Q 16

A manager following an interest rate anticipation strategy would shorten portfolio duration if interest rates were expected to increase.

Free

True False

Q 17Q 17

When applying active management techniques to a global portfolio the additional concern is expectations regarding exchange rates between countries.

Free

True False

Q 18Q 18

With a matched funding technique portfolio managers try to match specific liability obligations due at specific times to a portfolio of bonds that minimize the portfolio's interest rate risk.

Free

True False

Q 19Q 19

Investment horizon is the future time when an investor must begin an investment program to generate the required funds for a future liability.

Free

True False

Free

True False

Q 21Q 21

Altman-Nammacher (1987) create a modified Z-score model using a multiple regression analysis technique.

Free

True False

Q 22Q 22

The substitution swap is generally long term and relies heavily on interest rate expectations.

Free

True False

Free

True False

Q 24Q 24

Historically the correlation between stocks and bonds has consistently remained between 0.20 and 0.45.

Free

True False

Q 25Q 25

Which of the following is a passive bond portfolio strategy?
A)Indexing
B)Buy-and-Hold
C)Classical immunization
D)Choices a and b
E)None of the above

Free

Multiple Choice

Q 26Q 26

The active strategies for bond management include all of the following, except
A)Interest rate anticipation.
B)Credit analysis.
C)Spread analysis.
D)Classical immunization.
E)Bond swaps.

Free

Multiple Choice

Q 27Q 27

Which of the following is a matched funding technique?
A)Classical immunization
B)Contingent immunization
C)Bond swaps
D)Valuation analysis
E)Interest rate anticipation

Free

Multiple Choice

Q 28Q 28

For a bond investor selecting a buy-and-hold strategy, which of the following would be the least important consideration?
A)Term to maturity
B)Indenture provisions
C)Coupon levels
D)Liquidity
E)Quality

Free

Multiple Choice

Free

Multiple Choice

Q 30Q 30

Contingent immunization strategies
A)Provide the bond portfolio manager to engage in various active portfolio strategies if the client is willing to accept a floor value.
B)Insure that the modified duration of the portfolio is always equal to the desired investment horizon.
C)Guarantee that the end of the holding period wealth will not be impacted by interest rate changes.
D)All of the above statements are true.
E)None of the above statements are true.

Free

Multiple Choice

Q 31Q 31

Which of the following would not normally be a reason for a bond swap?
A)Increasing current yield
B)Improving the quality of the portfolio
C)Taking advantage of interest rate shifts
D)Tax savings
E)Realigning the portfolio's duration

Free

Multiple Choice

Q 32Q 32

If an investor swaps identical issues to establish a loss, the loss is disallowed and the transaction is known as a
A)Switch sale.
B)Wash sale.
C)Green shoe.
D)Flashback.
E)White knight.

Free

Multiple Choice

Q 33Q 33

The term dedication, used to describe portfolio management techniques, is referring to servicing a prescribed set of
A)Interest payments.
B)Assets.
C)Liabilities.
D)Pensioners.
E)Sinking fund payments.

Free

Multiple Choice

Q 34Q 34

Coupon reinvestment risk arises because the yield to maturity computation implicitly assumes that all coupon flows will be reinvested at the
A)Coupon rate.
B)Effective rate of interest.
C)Realized yield to maturity.
D)Promised yield to maturity.
E)Existing yield as the coupons are paid.

Free

Multiple Choice

Q 35Q 35

Assuming no change in interest rates, the duration of a coupon bond
A)Stays constant.
B)Declines more slowly than the term to maturity.
C)Declines more quickly than the term to maturity
D)Increases at a slower rate than the term to maturity.
E)Changes in line with the term to maturity.

Free

Multiple Choice

Q 36Q 36

In core-plus bond management
A)Seventy five percent of the portfolio is allocated to an equity index, and the balance to a bond index.
B)Seventy five percent of the portfolio is allocated to a bond index, and the balance to an equity index.
C)Seventy five percent of the portfolio is allocated to a bond index, and the balance to actively managed bond sectors.
D)Seventy five percent of the portfolio is allocated to actively managed bond sectors, and the balance to a bond index.
E)None of the above.

Free

Multiple Choice

Q 37Q 37

A tax swap involves swapping out of a
A)Bond to realize capital losses, into a comparable bond.
B)Low coupon bond, into a comparable high coupon bond.
C)High coupon bond, into a comparable low coupon bond.
D)Bond that is underpriced, into a comparable bond that is overpriced.
E)Bond that is overpriced, into a comparable bond that is underpriced.

Free

Multiple Choice

Q 38Q 38

A substitution pickup swap involves swapping out of a
A)Bond to realize capital losses, into a comparable bond.
B)Low coupon bond, into a comparable high coupon bond.
C)High coupon bond, into a comparable low coupon bond.
D)Bond that is underpriced, into a comparable bond that is overpriced.
E)Bond that is overpriced, into a comparable bond that is underpriced.

Free

Multiple Choice

Q 39Q 39

A pure yield pickup swap involves swapping out of a
A)Bond to realize capital losses, into a comparable bond.
B)Low coupon bond, into a comparable high coupon bond.
C)High coupon bond, into a comparable low coupon bond.
D)Bond that is underpriced, into a comparable bond that is overpriced.
E)Bond that is overpriced, into a comparable bond that is underpriced.

Free

Multiple Choice

Q 40Q 40

In a barbell strategy
A)One half of funds are invested in short duration bonds and the test in long duration bonds.
B)Seventy five percent of funds are invested in short duration bonds and the test in long duration bonds.
C)Twenty five percent of funds are invested in short duration bonds and the test in long duration bonds.
D)An equal amount of funds are invested in a wide range of maturities.
E)None of the above.

Free

Multiple Choice

Q 41Q 41

In a ladder strategy
A)One half of funds are invested in short duration bonds and the test in long duration bonds.
B)Seventy five percent of funds are invested in short duration bonds and the test in long duration bonds.
C)Twenty five percent of funds are invested in short duration bonds and the test in long duration bonds.
D)An equal amount of funds are invested in a wide range of maturities.
E)None of the above.

Free

Multiple Choice

Q 42Q 42

An example of an active strategy for bond management would be
A)Buy and hold.
B)Credit analysis.
C)Indexing.
D)Classical immunization.
E)Horizon matching.

Free

Multiple Choice

Q 43Q 43

A portfolio manager that attempts to select bonds based on their intrinsic value would be carrying out
A)Credit analysis
B)Valuation analysis
C)Yield-spread analysis
D)Horizon-matching analysis
E)Interest-rate analysis

Free

Multiple Choice

Q 44Q 44

Which factors indicate that in-depth credit analysis of high-yield bonds is important?
A)The large number of high-yield issues.
B)The overall decline in quality of these bonds.
C)The wide range of quality among these bonds.
D)The growing complexity of these bonds.
E)All of the above.

Free

Multiple Choice

Q 45Q 45

In classical immunization the effect of a change in interest rates is effectively neutralized because
A)Price risk and reinvestment risk offset each other.
B)Price risk and maturity risk offset each other.
C)Reinvestment risk and credit risk offset each other.
D)Reinvestment risk and maturity risk offset each other.
E)None of the above.

Free

Multiple Choice

Q 46Q 46

Horizon matching is a combination of
A)Immunization and valuation.
B)Cash matching and immunization.
C)Valuation and cash matching.
D)All of the above.
E)None of the above.

Free

Multiple Choice

Q 47Q 47

Interest rate risk is comprised of which of the following risks?
A)Price risk.
B)Coupon reinvestment risk.
C)Default risk.
D)Both a and b only.
E)All of the above.

Free

Multiple Choice

Q 48Q 48

Which of the following statements is true?
A)If Duration > Investment Horizon, the investor faces Net Reinvestment Risk.
B)If Duration < Investment Horizon, the investor faces Net Price Risk.
C)If Duration = Investment Horizon, the investor is immunized.
D)All of the above statements are true.
E)None of the above statements are true.

Free

Multiple Choice

Q 49Q 49

Horizon matching is a combination of
A)Cash-matching dedication and interest rates swaps.
B)Cash-matching dedication and immunization.
C)Interest rate swaps and immunization.
D)Enhanced indexing and immunization.
E)Enhanced indexing and interest rate swaps.

Free

Multiple Choice

Q 50Q 50

Investment style for a bond portfolio is best characterized by
A)Beta and credit quality
B)Credit quality and duration
C)Interest rate risk and yield to maturity
D)Yield to maturity and beta
E)None of the above

Free

Multiple Choice

Q 51Q 51

Two common methods for constructing a bond index are
A)Full replication and stratified sampling
B)Partial replication and overall market approach
C)ETFs and High Yield sampling
D)Multiple discriminant analysis and bond swaps
E)None of the above

Free

Multiple Choice

Q 52Q 52

Studies by Reilly and Wright (1994, 2001) and Fabozzi (2005) suggest analysis of high-yield bonds should be expanded to include all of the following except
A)The firm's competitive position with respect to cost and pricing
B)The firm's cash flow relative to interest expense, research expenses, and growth needs
C)The firm's market share and growth in sales
D)The quality of the total management team
E)All of the above were suggested as important areas of expanded analysis by these studies

Free

Multiple Choice

Q 53Q 53

Exhibit 19.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 10 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 10 year, 8 percent coupon bond priced to yield 9 percent. Assume a reinvestment at 9 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.1. The interest on one coupon for the candidate bond is
A)$2.97
B)$2.03
C)$1.80
D)$1.37
E)$3.49

Free

Multiple Choice

Q 54Q 54

Exhibit 19.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 10 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 10 year, 8 percent coupon bond priced to yield 9 percent. Assume a reinvestment at 9 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.1. The realized compound yield on the candidate bond is
A)7.0%
B)11.0%
C)10.0%
D)9.0%
E)12.0%

Free

Multiple Choice

Q 55Q 55

Exhibit 19.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 10 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 10 year, 8 percent coupon bond priced to yield 9 percent. Assume a reinvestment at 9 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.1. The value of the swap is ____ basis points in one year.
A)32.3
B)48.7
C)75.8
D)98.2
E)104.3

Free

Multiple Choice

Q 56Q 56

Exhibit 19.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 15 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 15 year, 7 percent coupon bond priced to yield 8.5 percent. Assume a reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.2. The dollar investment in the candidate bond is
A)$812.57
B)$803.22
C)$874.16
D)$746.83
E)$700.01

Free

Multiple Choice

Q 57Q 57

Exhibit 19.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 15 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 15 year, 7 percent coupon bond priced to yield 8.5 percent. Assume a reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.2. The realized compound yield on the current bond is
A)15.50%
B)11.03%
C)10.30%
D)8.01%
E)9.00%

Free

Multiple Choice

Q 58Q 58

Exhibit 19.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 15 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 15 year, 7 percent coupon bond priced to yield 8.5 percent. Assume a reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.2. The value of the swap is ____ basis points in one year.
A)18.4
B)23.3
C)49.1
D)46.5
E)46.8

Free

Multiple Choice

Q 59Q 59

Exhibit 19.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20 year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 20 year, Aa 10 percent coupon bond priced to yield 10.75 percent. Assume a reinvestment rate of 12.00 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.3. The interest on one coupon for the candidate bond is
A)$2.40
B)$2.75
C)$9.60
D)$11.00
E)$50.00

Free

Multiple Choice

Q 60Q 60

Exhibit 19.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20 year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 20 year, Aa 10 percent coupon bond priced to yield 10.75 percent. Assume a reinvestment rate of 12.00 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.3. The value of the swap is ____ basis points in one year.
A)40.4
B)60.6
C)80.8
D)20.5
E)100.1

Free

Multiple Choice

Q 61Q 61

Exhibit 19.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25 year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.4. The dollar investment in the candidate bond is
A)$780.34
B)$1483.25
C)$1361.54
D)$1413.95
E)$1000.00

Free

Multiple Choice

Q 62Q 62

Exhibit 19.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25 year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.4. The realized compound yield on the current bond is
A)6.00%
B)7.00%
C)8.00%
D)10.00%
E)12.00%

Free

Multiple Choice

Q 63Q 63

Exhibit 19.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 25 year, Aa 8 percent coupon bond priced to yield 10.50 percent. Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.4. The value of the swap is ____ basis points in one year.
A)26.91
B)26.25
C)31.25
D)41.25
E)51.25

Free

Multiple Choice

Q 64Q 64

Exhibit 19.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20 year, Aa 2 percent coupon bond priced to yield 9.5 percent. As a swap candidate you are considering a 20 year, Aa 14 percent coupon bond priced to yield 10.00. Assume a reinvestment rate of 11 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.5. The interest on one coupon for the candidate bond is
A)$70.00
B)$3.58
C)$3.85
D)$8.35
E)$5.38

Free

Multiple Choice

Q 65Q 65

Exhibit 19.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20 year, Aa 2 percent coupon bond priced to yield 9.5 percent. As a swap candidate you are considering a 20 year, Aa 14 percent coupon bond priced to yield 10.00. Assume a reinvestment rate of 11 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.5. The value of the swap is ____ basis points in one year.
A)0.004921
B)0.4921
C)4.921
D)49.21
E)492.1

Free

Multiple Choice

Q 66Q 66

Exhibit 19.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 10 percent coupon bond priced to yield 12 percent. As a swap candidate you are considering a 25 year, Aa 10 percent coupon bond priced to yield 13 percent. Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.6. The dollar investment in the candidate bond is
A)$1515.36
B)$853.50
C)$780.46
D)$779.13
E)$877.53

Free

Multiple Choice

Q 67Q 67

Exhibit 19.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 10 percent coupon bond priced to yield 12 percent. As a swap candidate you are considering a 25 year, Aa 10 percent coupon bond priced to yield 13 percent. Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.6. The realized compound yield on the current bond is
A)10.00%
B)11.9985%
C)12.9397%
D)13.9399%
E)12.3585%

Free

Multiple Choice

Q 68Q 68

Exhibit 19.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25 year, Aa 10 percent coupon bond priced to yield 12 percent. As a swap candidate you are considering a 25 year, Aa 10 percent coupon bond priced to yield 13 percent. Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year workout period.
-Refer to Exhibit 19.6. The value of the swap is ____ basis points in one year.
A)94.14
B)0.9414
C)9.414
D)941.4
E)0.09414

Free

Multiple Choice

Q 69Q 69

Exhibit 19.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9% per year, and a face value of $1000. Bond B has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9.5% per year, and a face value of $1000.
-Refer to Exhibit 19.7. Calculate the percentage gain per invested dollar for Bond A assuming a one year horizon, and a reinvestment rate of 9% per year.
A)9.73%
B)9.93%
C)9.20%
D)8.20%
E)9.50%

Free

Multiple Choice

Q 70Q 70

Exhibit 19.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9% per year, and a face value of $1000. Bond B has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9.5% per year, and a face value of $1000.
-Refer to Exhibit 19.7. Calculate the percentage gain per invested dollar for Bond B assuming a one year horizon, and a reinvestment rate of 9.5% per year.
A)9.73%
B)9.93%
C)9.20%
D)8.20%
E)9.50%

Free

Multiple Choice

Q 71Q 71

Exhibit 19.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9% per year, and a face value of $1000. Bond B has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9.5% per year, and a face value of $1000.
-Refer to Exhibit 19.7. Calculate the value of swap out of Bond A into Bond B.
A)0.41%
B)1.73%
C)0.23%
D)0.00%
E)0.51%

Free

Multiple Choice

Q 72Q 72

Exhibit 19.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond C has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond D has a coupon of 8% per year, maturity of 15 years, yield to maturity of 6% per year, and a face value of $1000.
-Refer to Exhibit 19.8. Calculate the modified duration for Bond C.
A)4.47
B)4.22
C)4.34
D)5
E)None of the above

Free

Multiple Choice

Q 73Q 73

Exhibit 19.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond C has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond D has a coupon of 8% per year, maturity of 15 years, yield to maturity of 6% per year, and a face value of $1000.
-Refer to Exhibit 19.8. Calculate the modified duration for Bond D.
A)9.5
B)9.8
C)9.2
D)15
E)None of the above

Free

Multiple Choice

Q 74Q 74

Exhibit 19.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond C has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond D has a coupon of 8% per year, maturity of 15 years, yield to maturity of 6% per year, and a face value of $1000.
-Refer to Exhibit 19.8. Assume that your investment horizon is 6 years and your portfolio consists only of Bond C and Bond D. Indicate the proportions invested in each bond, so that the portfolio is immunized.
A)50% in Bond C and 50% in Bond D
B)64% in Bond C and 36% in Bond D
C)36% in Bond C and 64% in Bond D
D)100% in Bond D
E)None of the above

Free

Multiple Choice

Q 75Q 75

Exhibit 19.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year, and a face value of $1000.
-Refer to Exhibit 19.9. Calculate the modified duration for Bond Y.
A)7.8
B)4.22
C)4.34
D)7.5
E)9.8

Free

Multiple Choice

Q 76Q 76

Exhibit 19.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year, and a face value of $1000.
-Refer to Exhibit 19.9. Calculate the modified duration for Bond X.
A)4.22
B)7.8
C)7.5
D)9.2
E)4.34

Free

Multiple Choice

Q 77Q 77

Exhibit 19.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year, and a face value of $1000.
-Refer to Exhibit 19.9. Assume that your investment horizon is 5 years and your portfolio consists only of Bond Y and Bond X. Indicate the proportions invested in each bond, so that the portfolio is immunized.
A)50% in Bond Y and 50% in Bond X
B)76% in Bond Y and 24% in Bond X
C)36% in Bond Y and 64% in Bond X
D)100% in Bond X
E)100% in Bond Y

Free

Multiple Choice

Q 78Q 78

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Calculate the price of Bond A.
A)$975.62
B)$982.17
C)$990.57
D)$1,009.50
E)$1,018.08

Free

Multiple Choice

Q 79Q 79

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Calculate the price of Bond B.
A)$974.69
B)$990.64
C)$995.22
D)$1,013.88
E)$1,025.77

Free

Multiple Choice

Q 80Q 80

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Calculate the Macaulay Duration for Bond A.
A)0.98
B)1.79
C)1.90
D)1.93
E)2.31

Free

Multiple Choice

Q 81Q 81

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Calculate the Macaulay Duration for Bond B.
A)1.44
B)2.47
C)2.55
D)2.70
E)2.78

Free

Multiple Choice

Q 82Q 82

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Calculate the Modified Duration for Bond A.
A)0.98
B)1.79
C)1.90
D)1.93
E)2.31

Free

Multiple Choice

Q 83Q 83

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Calculate the Modified Duration for Bond B.
A)1.44
B)2.47
C)2.55
D)2.70
E)2.78

Free

Multiple Choice

Q 84Q 84

Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 19.10. Assume that your investment horizon is 2 years and your portfolio consists only of bonds A and B. What proportion should be invested in each bond to immunize the portfolio?
A)Invest 72.4% in bond A and 27.6% in bond B.
B)Invest 68.3% in bond A and 31.7% in bond B.
C)Invest 58.5% in bond A and 41.5% in bond B.
D)Invest 31.7% in bond A and 68.3% in bond B.
E)Invest 27.6% in bond A and 72.4% in bond B.

Free

Multiple Choice

Q 85Q 85

Exhibit 19.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond X has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8% per year, and a face value of $1000. Bond Y has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8.5% per year, and a face value of $1000.
-Refer to Exhibit 19.11. Calculate the percentage gain per invested dollar for Bond X assuming a one year horizon, and a reinvestment rate of 8% per year.
A)2.35%
B)4.08%
C)7.92%
D)8.16%
E)8.32%

Free

Multiple Choice

Q 86Q 86

Exhibit 19.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond X has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8% per year, and a face value of $1000. Bond Y has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8.5% per year, and a face value of $1000.
-Refer to Exhibit 19.11. Calculate the percentage gain per invested dollar for Bond Y assuming a one year horizon, and a reinvestment rate of 8.5% per year.
A)7.84%
B)7.97%
C)8.18%
D)8.34%
E)8.56%

Free

Multiple Choice

Q 87Q 87

Exhibit 19.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond X has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8% per year, and a face value of $1000. Bond Y has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8.5% per year, and a face value of $1000.
-Refer to Exhibit 19.11. Calculate the value of swap out of Bond X into Bond Y.
A)0.38%
B)0.81%
C)1.94%
D)3.76%
E)4.12%

Free

Multiple Choice