投资学第7版testbank答案16.docx
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投资学第7版testbank答案16.docx
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投资学第7版testbank答案16
投资学第7版TestBank答案16
MultipleChoiceQuestions
1.Thedurationofabondisafunctionofthebond's
A)couponrate.
B)yieldtomaturity.
C)timetomaturity.
D)alloftheabove.
E)noneoftheabove.
Answer:
DDifficulty:
Easy
Rationale:
Durationiscalculatedbydiscountingthebond'scashflowsatthebond'syieldtomaturityand,exceptforzero-couponbonds,isalwayslessthantimetomaturity.
2.Ceterisparibus,thedurationofabondispositivelycorrelatedwiththebond's
A)timetomaturity.
B)couponrate.
C)yieldtomaturity.
D)alloftheabove.
E)noneoftheabove.
Answer:
ADifficulty:
Moderate
Rationale:
Durationisnegativelycorrelatedwithcouponrateandyieldtomaturity.
3.Holdingotherfactorsconstant,theinterest-rateriskofacouponbondishigherwhenthebond's:
A)term-to-maturityislower.
B)couponrateishigher.
C)yieldtomaturityislower.
D)currentyieldishigher.
E)noneoftheabove.
Answer:
CDifficulty:
Moderate
Rationale:
Thelongerthematurity,thegreatertheinterest-raterisk.Thelowerthecouponrate,thegreatertheinterest-raterisk.Thelowertheyieldtomaturity,thegreatertheinterest-raterisk.Theseconceptsarereflectedinthedurationrules;durationisameasureofbondpricesensitivitytointerestratechanges(interest-raterisk).
4.The"modifiedduration"usedbypractitionersisequaltotheMacaulayduration
A)timesthechangeininterestrate.
B)times(oneplusthebond'syieldtomaturity).
C)dividedby(oneminusthebond'syieldtomaturity).
D)dividedby(oneplusthebond'syieldtomaturity).
E)noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
D*=D/(1+y)
5.Giventhetimetomaturity,thedurationofazero-couponbondishigherwhenthediscountrateis
A)higher.
B)lower.
C)equaltotheriskfreerate.
D)Thebond'sdurationisindependentofthediscountrate.
E)noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
Thedurationofazero-couponbondisequaltothematurityofthebond.
6.Theinterest-rateriskofabondis
A)theriskrelatedtothepossibilityofbankruptcyofthebond'sissuer.
B)theriskthatarisesfromtheuncertaintyofthebond'sreturncausedbychangesininterestrates.
C)theunsystematicriskcausedbyfactorsuniqueinthebond.
D)AandBabove.
E)A,B,andCabove.
Answer:
BDifficulty:
Moderate
Rationale:
Changinginterestrateschangethebond'sreturn,bothintermsofthepriceofthebondandthereinvestmentofcouponpayments.
7.Whichofthefollowingtwobondsismorepricesensitivetochangesininterestrates
1)Aparvaluebond,X,witha5-year-to-maturityanda10%couponrate.
2)Azero-couponbond,Y,witha5-year-to-maturityanda10%yield-to-maturity.
A)BondXbecauseofthehigheryieldtomaturity.
B)BondXbecauseofthelongertimetomaturity.
C)BondYbecauseofthelongerduration.
D)Bothhavethesamesensitivitybecausebothhavethesameyieldtomaturity.
E)Noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
Durationisthebestmeasureofbondpricesensitivity;thelongerthedurationthehigherthepricesensitivity.
8.Holdingotherfactorsconstant,whichoneofthefollowingbondshasthesmallestpricevolatility
A)5-year,0%couponbond
B)5-year,12%couponbond
C)5year,14%couponbond
D)5-year,10%couponbond
E)Cannottellfromtheinformationgiven.
Answer:
CDifficulty:
Moderate
Rationale:
Duration(andthuspricevolatility)islowerwhenthecouponratesarehigher.
9.Whichofthefollowingisnottrue
A)Holdingotherthingsconstant,thedurationofabondincreaseswithtimetomaturity.
B)Giventimetomaturity,thedurationofazero-coupondecreaseswithyieldtomaturity.
C)Giventimetomaturityandyieldtomaturity,thedurationofabondishigherwhenthecouponrateislower.
D)Durationisabettermeasureofpricesensitivitytointerestratechangesthanistimetomaturity.
E)Alloftheabove.
Answer:
BDifficulty:
Moderate
Rationale:
Thedurationofazero-couponbondisequaltotimetomaturity,andisindependentofyieldtomaturity.
10.Thedurationofa5-yearzero-couponbondis
A)smallerthan5.
B)largerthan5.
C)equalto5.
D)equaltothatofa5-year10%couponbond.
E)noneoftheabove.
Answer:
CDifficulty:
Easy
Rationale:
Durationofazero-couponbondequalsthebond'smaturity.
11.Thebasicpurposeofimmunizationisto
A)eliminatedefaultrisk.
B)produceazeronetinterest-raterisk.
C)offsetpriceandreinvestmentrisk.
D)AandB.
E)BandC.
Answer:
EDifficulty:
Moderate
Rationale:
Whenaportfolioisimmunized,priceriskandreinvestmentriskexactlyoffseteachotherresultinginzeronetinterest-raterisk.
12.Thedurationofaparvaluebondwithacouponrateof8%andaremainingtimetomaturityof5yearsis
A)5years.
B)years.
C)years.
D)years.
E)noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
Calculationsareshownbelow.
Yr.
CF
PVofCF@08%
Weight*Yr.
1
$80
$80/=$
*1=
2
$80
$80/2=$
*2=
3
$80
$80/3=$
*3=
4
$80
$80/4=$
*4=
5
$1,080
$1,080/5=$
*5=
Sum
$
yrs.(duration)
13.Thedurationofaperpetuitywithayieldof8%is
A)years.
B)years.
C)years.
D)cannotbedetermined.
E)noneoftheabove.
Answer:
ADifficulty:
Easy
Rationale:
D==years.
14.Aseven-yearparvaluebondhasacouponrateof9%andamodifieddurationof
A)7years.
B)years.
C)years.
D)years.
E)noneoftheabove.
Answer:
CDifficulty:
Difficult
Rationale:
Calculationsareshownbelow.
Yr.
CF
PVofCF@9%
Weight*Yr.
1
$90
$
X1=
2
$90
$
X2=
3
$90
$
X3=
4
$90
$
X4=
5
$90
$
X5=
6
$90
$
X6=
7
$1,090
$
X7=
Sum
$
years(duration)
modifiedduration=years/=years.
15.ParvaluebondXYZhasamodifieddurationof6.Whichoneofthefollowingstatementsregardingthebondistrue
A)Ifthemarketyieldincreasesby1%thebond'spricewilldecreaseby$60.
B)Ifthemarketyieldincreasesby1%thebond'spricewillincreaseby$50.
C)Ifthemarketyieldincreasesby1%thebond'spricewilldecreaseby$50.
D)Ifthemarketyieldincreasesby1%thebond'spricewillincreaseby$60.
E)Noneoftheabove.
Answer:
ADifficulty:
Moderate
Rationale:
=-D*-$60=-6X$1,000
16.Whichofthefollowingbondshasthelongestduration
A)An8-yearmaturity,0%couponbond.
B)An8-yearmaturity,5%couponbond.
C)A10-yearmaturity,5%couponbond.
D)A10-yearmaturity,0%couponbond.
E)Cannottellfromtheinformationgiven.
Answer:
DDifficulty:
Moderate
Rationale:
Thelongerthematurityandthelowerthecoupon,thegreatertheduration
17.Whichoneofthefollowingparvalue12%couponbondsexperiencesapricechangeof$23whenthemarketyieldchangesby50basispoints
A)Thebondwithadurationof6years.
B)Thebondwithadurationof5years.
C)Thebondwithadurationofyears.
D)Thebondwithadurationofyears.
E)Noneoftheabove.
Answer:
DDifficulty:
Difficult
Rationale:
DP/P=-DX[D(1+y)/(1+y)];=-DX[.005/];D=.
18.Whichoneofthefollowingstatementsistrueconcerningthedurationofaperpetuity
A)Thedurationof15%yieldperpetuitythatpays$100annuallyislongerthanthatofa15%yieldperpetuitythatpays$200annually.
B)Thedurationofa15%yieldperpetuitythatpays$100annuallyisshorterthanthatofa15%yieldperpetuitythatpays$200annually.
C)Thedurationofa15%yieldperpetuitythatpays$100annuallyisequaltothatof15%yieldperpetuitythatpays$200annually.
D)thedurationofaperpetuitycannotbecalculated.
E)Noneoftheabove.
Answer:
CDifficulty:
Easy
Rationale:
Durationofaperpetuity=(1+y)/y;thus,thedurationofaperpetuityisdeterminedbytheyieldandisindependentofthecashflow.
19.Thetwocomponentsofinterest-rateriskare
A)priceriskanddefaultrisk.
B)reinvestmentriskandsystematicrisk.
C)callriskandpricerisk.
D)priceriskandreinvestmentrisk.
E)noneoftheabove.
Answer:
DDifficulty:
Easy
Rationale:
Default,systematic,andcallrisksarenotpartofinterest-raterisk.Onlypriceandreinvestmentrisksarepartofinterest-raterisk.
20.Thedurationofacouponbond
A)doesnotchangeafterthebondisissued.
B)canaccuratelypredictthepricechangeofthebondforanyinterestratechange.
C)willdecreaseastheyieldtomaturitydecreases.
D)alloftheabovearetrue.
E)noneoftheaboveistrue.
Answer:
EDifficulty:
Easy
Rationale:
Durationchangesasinterestratesandtimetomaturitychange,canonlypredictpricechangesaccuratelyforsmallinterestratechanges,andincreasesastheyieldtomaturitydecreases.
21.Indexingofbondportfoliosisdifficultbecause
A)thenumberofbondsincludedinthemajorindexesissolargethatitwouldbedifficulttopurchasethemintheproperproportions.
B)manybondsarethinlytradedsoitisdifficulttopurchasethematafairmarketprice.
C)thecompositionofbondindexesisconstantlychanging.
D)alloftheabovearetrue.
E)bothAandBaretrue.
Answer:
DDifficulty:
Moderate
Rationale:
Alloftheabovearetruestatementsaboutbondindexes.
22.Youhaveanobligationtopay$1,488infouryearsand2months.Inwhichbondwouldyouinvestyour$1,000toaccumulatethisamount,withrelat
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