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1、Chapter 16 Managing Bond Portfolios 360Multiple Choice Questions1. The duration of a bond is a function of the bonds A) coupon rate. B) yield to maturity. C) time to maturity. D) all of the above. E) none of the above. Answer: D Difficulty: Easy Rationale: Duration is calculated by discounting the b
2、onds cash flows at the bonds yield to maturity and, except for zero-coupon bonds, is always less than time to maturity.2. Ceteris paribus, the duration of a bond is positively correlated with the bonds A) time to maturity. B) coupon rate. C) yield to maturity. D) all of the above. E) none of the abo
3、ve. Answer: A Difficulty: Moderate Rationale: Duration is negatively correlated with coupon rate and yield to maturity.3. Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bonds: A) term-to-maturity is lower. B) coupon rate is higher. C) yield to maturity is
4、lower. D) current yield is higher. E) none of the above. Answer: C Difficulty: Moderate Rationale: The longer the maturity, the greater the interest-rate risk. The lower the coupon rate, the greater the interest-rate risk. The lower the yield to maturity, the greater the interest-rate risk. These co
5、ncepts are reflected in the duration rules; duration is a measure of bond price sensitivity to interest rate changes (interest-rate risk).Chapter 16 Managing Bond Portfolios 3614. The “modified duration“ used by practitioners is equal to the Macaulay duration A) times the change in interest rate. B)
6、 times (one plus the bonds yield to maturity). C) divided by (one minus the bonds yield to maturity). D) divided by (one plus the bonds yield to maturity). E) none of the above. Answer: D Difficulty: Moderate Rationale: D* = D/(1 + y)5. Given the time to maturity, the duration of a zero-coupon bond
7、is higher when the discount rate is A) higher. B) lower. C) equal to the risk free rate. D) The bonds duration is independent of the discount rate. E) none of the above. Answer: D Difficulty: Moderate Rationale: The duration of a zero-coupon bond is equal to the maturity of the bond.6. The interest-
8、rate risk of a bond is A) the risk related to the possibility of bankruptcy of the bonds issuer. B) the risk that arises from the uncertainty of the bonds 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
9、. Answer: B Difficulty: Moderate Rationale: Changing interest rates change the bonds return, both in terms of the price of the bond and the reinvestment of coupon payments.Chapter 16 Managing Bond Portfolios 3627. Which of the following two bonds is more price sensitive to changes in interest rates?
10、1) A par value bond, X, with a 5-year-to-maturity and a 10% coupon rate. 2) A zero-coupon bond, Y, with a 5-year-to-maturity and a 10% yield-to-maturity. A) Bond X because of the higher yield to maturity. B) Bond X because of the longer time to maturity. C) Bond Y because of the longer duration. D)
11、Both have the same sensitivity because both have the same yield to maturity. E) None of the above Answer: C Difficulty: Moderate Rationale: Duration is the best measure of bond price sensitivity; the longer the duration the higher the price sensitivity.8. Holding other factors constant, which one of
12、 the following bonds has the smallest price volatility? A) 5-year, 0% coupon bond B) 5-year, 12% coupon bond C) 5 year, 14% coupon bond D) 5-year, 10% coupon bond E) Cannot tell from the information given. Answer: C Difficulty: Moderate Rationale: Duration (and thus price volatility) is lower when t
13、he coupon rates are higher.9. Which of the following is not true? A) Holding other things constant, the duration of a bond increases with time to maturity. B) Given time to maturity, the duration of a zero-coupon decreases with yield to maturity. C) Given time to maturity and yield to maturity, the
14、duration of a bond is higher when the coupon rate is lower. D) Duration is a better measure of price sensitivity to interest rate changes than is time to maturity. E) All of the above. Answer: B Difficulty: Moderate Rationale: The duration of a zero-coupon bond is equal to time to maturity, and is i
15、ndependent of yield to maturity.Chapter 16 Managing Bond Portfolios 36310. The duration of a 5-year zero-coupon bond is A) smaller than 5. B) larger than 5. C) equal to 5. D) equal to that of a 5-year 10% coupon bond. E) none of the above. Answer: C Difficulty: Easy Rationale: Duration of a zero-cou
16、pon bond equals the bonds maturity.11. The basic purpose of immunization is to A) eliminate default risk. B) produce a zero net interest-rate risk. C) offset price and reinvestment risk. D) A and B. E) B and C. Answer: E Difficulty: Moderate Rationale: When a portfolio is immunized, price risk and reinvestment risk exactly offset each other result
