Question 1

Identify and briefly explain four of Malkiel's five theorems.

Accepted Answer

The answer of Identify and briefly explain four of Malkiel's...

Question 2

A bond has a Macaulay duration of 5.5,a yield to maturity of 6.1 percent,a coupon rate of 7.0 percent,and semiannual interest payments.What is the bond's modified duration?

Accepted Answer

Using the formula for modified duration: 
Modified Duration = Macaulay Duration / (1 + Yield to maturity/number of coupon payments per year) 
= 5.5 / (1 + 0.061/2) 
= 5.34 years

Question 3

A bond has a modified duration of 5.87 years,a par value of $1,000,and a current market value of $1,008.What is the dollar value of an 01?

Accepted Answer

Dollar value of an 01 » 5.87/100 × $1,008 × 0.01 = $0.5917

Question 4

A $1,000 face value bond has a 9.0 percent coupon and pays interest semiannually.The bond matures in 2 years and has a yield to maturity of 6.5 percent.What is the Macaulay duration?

Accepted Answer

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Question 5

Phil owns a 7 percent,semiannual coupon bond that has a face value of $1,000 and matures in 16 years.The bond has a current yield to maturity of 7.1 percent.What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?

Accepted Answer

Using a financial calculator: Using a financial calculator: Percentage change in bond price = ($1,039.16 - $990.53)/$990.53 = 4.91 percent

Question 6

The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a modified duration of 10.8.If the yield to maturity instantly decreased to 7.5 percent,the bond's price would increase/decrease by _____ percent.

Accepted Answer

Percentage change in bond price = -10.8 × (.075 - .084) = 9.72 percent

Question 7

Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond.These bonds have a modified duration of 9.84.What is the dollar value of an 01?

Accepted Answer

Dollar value of an 01 » 9.84/100 × $952.42 × .01 = $0.9372

Question 8

The price of a bond decreased by 1.45 percent in response to an increase in the yield to maturity from 7.2 to 7.6 percent.What is the bond's Macaulay duration?

Accepted Answer

We can use the formula ΔP/P = -D × Δy to solve for the Macaulay duration, where ΔP is the change in price, P is the initial price, D is the Macaulay duration, and Δy is the change in yield to maturity as decimals. We can plug in the given values to get:
-0.0145 = -D × (0.076 - 0.072)
Solving for D, we get:
D = 3.76 years
Therefore, the best choice is B.

Question 9

Explain the conditions under which an investor should place more reliance on the yield-to-call than on the yield-to-maturity.

Accepted Answer

The answer of Explain the conditions under which an investor...

Question 10

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years.The yield to maturity is 6.4 percent.What is the Macaulay duration?

Accepted Answer

The duration of a zero-coupon bond is equal to the time to maturity. Thus, the answer is 4.5 years.

Question 11

A bond has a dollar value of an 01 of .0684.What is the yield value of a 32^nd?

Accepted Answer

Yield value of a 32^nd » 1/(32 × .0684) = .4569

Question 12

A 6 percent,semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7.The bond has a modified duration of _____ and will have a _____ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.

Accepted Answer

Percentage change in bond price = -5.4966 × -.0025 = 1.37 percent

Question 13

Josh is saving money to purchase a home in 9 years.Explain why Josh should create a coupon bond portfolio with a duration of 9 years,rather than purchasing coupon bonds that mature in 9 years.

Accepted Answer

The answer of Josh is saving money to purchase a...

Question 14

A bond has a Macaulay duration of 6.25 years.What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?

Accepted Answer

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Question 15

A bond has a modified duration of 7.22 and a yield to maturity of 8.1 percent.If interest rates increase by 75 basis points,the bond's price will decrease by _____ percent.

Accepted Answer

Percentage change in bond price = -7.22 × .0075 = -5.42 percent

Quiz 10: Bond Prices and Yields

Identify and briefly explain four of Malkiel's five theorems.

A bond has a Macaulay duration of 5.5,a yield to maturity of 6.1 percent,a coupon rate of 7.0 percent,and semiannual interest payments.What is the bond's modified duration?

A bond has a modified duration of 5.87 years,a par value of $1,000,and a current market value of $1,008.What is the dollar value of an 01?

A $1,000 face value bond has a 9.0 percent coupon and pays interest semiannually.The bond matures in 2 years and has a yield to maturity of 6.5 percent.What is the Macaulay duration?

Phil owns a 7 percent,semiannual coupon bond that has a face value of $1,000 and matures in 16 years.The bond has a current yield to maturity of 7.1 percent.What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?

The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a modified duration of 10.8.If the yield to maturity instantly decreased to 7.5 percent,the bond's price would increase/decrease by _____ percent.

Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond.These bonds have a modified duration of 9.84.What is the dollar value of an 01?

The price of a bond decreased by 1.45 percent in response to an increase in the yield to maturity from 7.2 to 7.6 percent.What is the bond's Macaulay duration?

Explain the conditions under which an investor should place more reliance on the yield-to-call than on the yield-to-maturity.

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years.The yield to maturity is 6.4 percent.What is the Macaulay duration?

A bond has a dollar value of an 01 of .0684.What is the yield value of a 32^nd?

A 6 percent,semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7.The bond has a modified duration of _ and will have a _ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.

Josh is saving money to purchase a home in 9 years.Explain why Josh should create a coupon bond portfolio with a duration of 9 years,rather than purchasing coupon bonds that mature in 9 years.

A bond has a Macaulay duration of 6.25 years.What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?

A bond has a modified duration of 7.22 and a yield to maturity of 8.1 percent.If interest rates increase by 75 basis points,the bond's price will decrease by _____ percent.

Quiz 10: Bond Prices and Yields

Identify and briefly explain four of Malkiel's five theorems.

A bond has a Macaulay duration of 5.5,a yield to maturity of 6.1 percent,a coupon rate of 7.0 percent,and semiannual interest payments.What is the bond's modified duration?

A bond has a modified duration of 5.87 years,a par value of $1,000,and a current market value of $1,008.What is the dollar value of an 01?

A $1,000 face value bond has a 9.0 percent coupon and pays interest semiannually.The bond matures in 2 years and has a yield to maturity of 6.5 percent.What is the Macaulay duration?

Phil owns a 7 percent,semiannual coupon bond that has a face value of $1,000 and matures in 16 years.The bond has a current yield to maturity of 7.1 percent.What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?

The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a modified duration of 10.8.If the yield to maturity instantly decreased to 7.5 percent,the bond's price would increase/decrease by _____ percent.

Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond.These bonds have a modified duration of 9.84.What is the dollar value of an 01?

The price of a bond decreased by 1.45 percent in response to an increase in the yield to maturity from 7.2 to 7.6 percent.What is the bond's Macaulay duration?

Explain the conditions under which an investor should place more reliance on the yield-to-call than on the yield-to-maturity.

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years.The yield to maturity is 6.4 percent.What is the Macaulay duration?

A bond has a dollar value of an 01 of .0684.What is the yield value of a 32nd?

A 6 percent,semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7.The bond has a modified duration of _____ and will have a _____ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.

Josh is saving money to purchase a home in 9 years.Explain why Josh should create a coupon bond portfolio with a duration of 9 years,rather than purchasing coupon bonds that mature in 9 years.

A bond has a Macaulay duration of 6.25 years.What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?

A bond has a modified duration of 7.22 and a yield to maturity of 8.1 percent.If interest rates increase by 75 basis points,the bond's price will decrease by _____ percent.

A bond has a dollar value of an 01 of .0684.What is the yield value of a 32^nd?

A 6 percent,semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7.The bond has a modified duration of _ and will have a _ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.