投资学第7版TestBank答案16

1、Multiple Choice Questions1. The duration of a bond is a function of the bondsA) coupon rate.B) yield to maturity.C) time to maturity.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: Duration is calculated by discounting the bonds cash flows at the bonds yield to maturity

2、 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 bondsA) time to maturity.B) coupon rate.C) yield to maturity.D) all of the above.E) none of the above.Answer: A Difficulty: ModerateRationale: Duratio

3、n 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 lower.D) current yield is higher.E) none of the above.An

4、swer: C Difficulty: ModerateRationale: 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 concepts are reflected in the duration rules; duration is a me

5、asure of bond price sensitivity to interest rate changes (interest-rate risk).4. The modified duration used by practitioners is equal to the Macaulay durationA) times the change in interest rate.B) times (one plus the bonds yield to maturity).C) divided by (one minus the bonds yield to maturity).D)

6、divided by (one plus the bonds yield to maturity).E) none of the above.Answer: D Difficulty: ModerateRationale: D* = D/(1 + y)5. Given the time to maturity, the duration of a zero-coupon bond is higher when the discount rate isA) higher.B) lower.C) equal to the risk free rate.D) The bonds duration i

7、s independent of the discount rate.E) none of the above.Answer: D Difficulty: ModerateRationale: The duration of a zero-coupon bond is equal to the maturity of the bond.6. The interest-rate risk of a bond isA) the risk related to the possibility of bankruptcy of the bonds issuer.B) the risk that ari

8、ses 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.Answer: B Difficulty: ModerateRationale: Changing interest rates change the bonds return, both in terms of the price of

9、 the bond and the reinvestment of coupon payments.7. Which of the following two bonds is more price sensitive to changes in interest rates?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

10、 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) Both have the same sensitivity because both have the same yield to maturity.E) None of the aboveAnswer: C Difficulty: ModerateRationale: Duration is the best measure

11、of bond price sensitivity; the longer the duration the higher the price sensitivity.8. Holding other factors constant, which one of the following bonds has the smallest price volatility?A) 5-year, 0% coupon bondB) 5-year, 12% coupon bondC) 5 year, 14% coupon bondD) 5-year, 10% coupon bondE) Cannot t

12、ell from the information given.Answer: C Difficulty: ModerateRationale: Duration (and thus price volatility) is lower when the 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 matur

13、ity, the duration of a zero-coupon decreases with yield to maturity.C) Given time to maturity and yield to maturity, the 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 abo

14、ve.Answer: B Difficulty: ModerateRationale: The duration of a zero-coupon bond is equal to time to maturity, and is independent of yield to maturity.10. The duration of a 5-year zero-coupon bond isA) smaller than 5.B) larger than 5.C) equal to 5.D) equal to that of a 5-year 10% coupon bond.E) none o

15、f the above.Answer: C Difficulty: EasyRationale: Duration of a zero-coupon bond equals the bonds maturity.11. The basic purpose of immunization is toA) 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: Mo

16、derateRationale: When a portfolio is immunized, price risk and reinvestment risk exactly offset each other resulting in zero net interest-rate risk.12. The duration of a par value bond with a coupon rate of 8% and a remaining time to maturity of 5 years isA) 5 years.B) 5.4 years.C) 4.17 years.D) 4.3

17、1 years.E) none of the above.Answer: D Difficulty: ModerateRationale:Calculations are shown below.Yr.1CF$80PV of CF08%Weight * Yr.$80/1.08 =$74.070.0741* 1= 0.07412$80$80/(1.08)2$68.590.0686* 2= 0.13723$80$80/(1.08)3$63.510.0635* 3= 0.19054$80$80/(1.08)4$58.800.0588* 4= 0.23525$1,080$1,080/(1.08)5=

18、$735.030.7350* 5= 3.6750Sum$1000.004.3120 yrs. (duration)13. The duration of a perpetuity with a yield of 8% isA) 13.50 years.B) 12.11 years.C) 6.66 years.D) cannot be determined.E) none of the above.Answer: A Difficulty: EasyRationale: D = 1.08/0.08 = 13.50 years.14. A seven-year par value bond has

19、 a coupon rate of 9% and a modified duration ofA) 7 years.B) 5.49 years.C) 5.03 years.D) 4.87 years.Yr.CFPV of CF9%1$90$82.572$90$75.753$90$69.504$90$63.765$90$58.496$90$53.667$1,090$596.26Sum$1000.00Answer: C Difficulty: DifficultRationale:Calculations are shown below.E) none of the above.Weight *

20、Yr.0.0826 X 1 = 0.08260.0758 X 2 = 0.15160.0695 X 3 = 0.2085 0.0638 X 4 = 0.2552 0.0585 X 5 = 0.2925 0.0537 X 6 = 0.3222 0.5963 X 7 = 4.1741 5.4867 years (duration)modified duration = 5.4867 years/1.09 = 5.03 years.15. Par value bond XYZ has a modified duration of 6. Which one of the following state

21、ments regarding the bond istrue ?A) If the market yield increases by 1% the bonds price will decrease by $60.B) If the market yield increases by 1% the bonds price will increase by $50.C) If the market yield increases by 1% the bonds price will decrease by $50.D) If the market yield increases by 1%

22、the bonds price will increase by $60.E) None of the above.Answer: A Difficulty: ModerateRationale: = -D*-$60 = -6(0.01) X $1,00016. Which of the following bonds has the longest duration?A) An 8-year maturity, 0% coupon bond.B) An 8-year maturity, 5% coupon bond.C) A 10-year maturity, 5% coupon bond.

23、D) A 10-year maturity, 0% coupon bond.E) Cannot tell from the information given.Answer: D Difficulty: ModerateRationale: The longer the maturity and the lower the coupon, the greater the duration17. Which one of the following par value 12% coupon bonds experiences a price change of $23 when the mark

24、et yield changes by 50 basis points?A) The bond with a duration of 6 years.B) The bond with a duration of 5 years.C) The bond with a duration of 2.7 years.D) The bond with a duration of 5.15 years.E) None of the above.Answer: D Difficulty: DifficultRationale: DP/P = -D X D(1+y) / (1+y); -.023 = -D X

25、 .005 / 1.12; D = 5.15.18. Which one of the following statements is true concerning the duration of a perpetuity?A) The duration of 15% yield perpetuity that pays $100 annually is longer than that of a 15% yield perpetuity that pays $200 annually.B) The duration of a 15% yield perpetuity that pays $

26、100 annually is shorter than that of a 15% yield perpetuity that pays $200 annually.C) The duration of a 15% yield perpetuity that pays $100 annually is equal to that of 15% yield perpetuity that pays $200 annually.D) the duration of a perpetuity cannot be calculated.E) None of the above.Answer: C D

27、ifficulty: EasyRationale: Duration of a perpetuity = (1 + y)/y; thus, the duration of a perpetuity is determined by the yield and is independent of the cash flow.19. The two components of interest-rate risk areA) price risk and default risk.B) reinvestment risk and systematic risk.C) call risk and p

28、rice risk.D) price risk and reinvestment risk.E) none of the above.Answer: D Difficulty: EasyRationale: Default, systematic, and call risks are not part of interest-rate risk. Only price and reinvestment risks are part of interest-rate risk.20. The duration of a coupon bondA) does not change after t

29、he bond is issued.B) can accurately predict the price change of the bond for any interest rate change.C) will decrease as the yield to maturity decreases.D) all of the above are true.E) none of the above is true.Answer: E Difficulty: EasyRationale: Duration changes as interest rates and time to matu

30、rity change, can only predict price changes accurately for small interest rate changes, and increases as the yield to maturity decreases.21. Indexing of bond portfolios is difficult becauseA) the number of bonds included in the major indexes is so large that it would be difficult to purchase them in

31、 the proper proportions.B) many bonds are thinly traded so it is difficult to purchase them at a fair market price.C) the composition of bond indexes is constantly changing.D) all of the above are true.E) both A and B are true.Answer: D Difficulty: ModerateRationale: All of the above are true statem

32、ents about bond indexes.22. You have an obligation to pay $1,488 in four years and 2 months. In which bond would you invest your $1,000 to accumulate this amount, with relative certainty, even if the yield on the bond declines to 9.5% immediately after you purchase the bond?A) a 6-year; 10% coupon p

33、ar value bondB) a 5-year; 10% coupon par value bondC) a 5-year; zero-coupon bondD) a 4-year; 10% coupon par value bondE) none of the aboveAnswer: B Difficulty: DifficultRationale: When duration = horizon date, one is immunized, or protected, against one interest rate change. The zero has D = 5. Sinc

34、e the other bonds have the same coupon and yield, solve for the closest value of T that gives D = 4.2 years. 4.2 = (1.10)/.10 - (1.10) + T(.10-.10) / = 1.1; .68 (1.10) T - .68 + .68 = 1.1; .68 (1.10) T = 1.1; (1.10) T = 1.6176; T ln (1.10) = ln (1.6176); T = 5.05 years, so choose the 5-year 10% coup

35、on bond.23. Duration measuresA) weighted average time until a bonds half-life.B) weighted average time until cash flow payment.C) the time required to recoup ones investment, assuming the bond was purchased for $1,000.D) A and C.E) B and C.Answer: E Difficulty: ModerateRationale: B and C are true, a

36、s one receives coupon payments throughout the life of the bond (for coupon bonds); thus, duration is less than time to maturity (except for zeros).24. DurationA) assesses the time element of bonds in terms of both coupon and term to maturity.B) allows structuring a portfolio to avoid interest-rate r

37、isk.C) is a direct comparison between bond issues with different levels of risk.D) A and B.E) A and C.Answer: D Difficulty: ModerateRationale: Duration is a weighted average of when the cash flows of a bond are received; thus both coupon and time to maturity are considered. If the duration of the po

38、rtfolio equals the investors horizon date, the investor is protected against interest rate changes.25. Identify the bond that has the longest duration (no calculations necessary).A) 20-year maturity with an 8% coupon.B) 20-year maturity with a 12% coupon.C) 15-year maturity with a 0% coupon.D) 10-ye

39、ar maturity with a 15% coupon.E) 12-year maturity with a 12% coupon.Answer: C Difficulty: ModerateRationale: The lower the coupon, the longer the duration. The zero-coupon bond is the ultimate low coupon bond, and thus would have the longest duration.26. When interest rates decline, the duration of

40、a 10-year bond selling at a premiumA) increases.B) decreases.C) remains the same.D) increases at first, then declines.E) decreases at first, then increases.Answer: A Difficulty: ModerateRationale: The relationship between interest rates and duration is an inverse one.27. An 8%, 30-year corporate bon

41、d was recently being priced to yield 10%. The Macaulay duration for the bond is 10.20 years. Given this information, the bonds modified duration would be.A) 8.05B) 9.44C) 9.27D) 11.22E) none of the aboveAnswer: C Difficulty: EasyRationale: D* = D/(1 + y); D* = 10.2/(1.1) = 9.2728. An 8%, 15-year bon

42、d has a yield to maturity of 10% and duration of 8.05 years. If the market yield changes by 25 basis points, how much change will there be in the bonds price?A) 1.85%B) 2.01%C) 3.27%D) 6.44%E) none of the aboveAnswer: A Difficulty: ModerateRatio nale: P/P =-8.05 X 0.0025)/1.1 = 1.85%29. One way that

43、 banks can reduce the duration of their asset portfolios is through the use ofA) fixed rate mortgages.B) adjustable rate mortgages.C) certificates of deposit.D) short-term borrowing.E) none of the above.Answer: B Difficulty: EasyRationale: One of the gap management strategies practiced by banks is t

44、he issuance of adjustable rate mortgages, which reduce the interest rate sensitivity of their asset portfolios.30. The duration of a bond normally increases with an increase inA) term to maturity.B) yield to maturity.C) coupon rate.D) all of the above.E) none of the above.Answer: A Difficulty: Moder

45、ateRationale: The relationship between duration and term to maturity is a direct one; the relationship between duration and yield to maturity and to coupon rate is negative.31. Which one of the following is an incorrect statement concerning duration?A) The higher the yield to maturity, the greater t

46、he durationB) The higher the coupon, the shorter the duration.C) The difference in duration is small between two bonds with different coupons each maturing in more than 15 years.D) The duration is the same as term to maturity only in the case of zero-coupon bonds.E) All of the statements are correct

47、.Answer: A Difficulty: ModerateRationale: The relationship between duration and yield to maturity is an inverse one; as is the relationship between duration and coupon rate. The difference in the durations of longer-term bonds of varying coupons (high coupon vs. zero) is considerable. Duration equal

48、s term to maturity only with zeros.32. Immunization is not a strictly passive strategy becauseA) it requires choosing an asset portfolio that matches an index.B) there is likely to be a gap between the values of assets and liabilities in most portfolios.C) it requires frequent rebalancing as maturit

49、ies and interest rates change.D) durations of assets and liabilities fall at the same rate.E) none of the above.Answer: C Difficulty: ModerateRationale: As time passes the durations of assets and liabilities fall at different rates, requiring portfolio rebalancing. Further, every change in interest

50、rates creates changes in the durations of portfolio assets and liabilities.33. Contingent immunizationA) is a mixed-active passive bond portfolio management strategy.B) is a strategy whereby the portfolio may or may not be immunized.C) is a strategy whereby if and when some trigger point value of th

51、e portfolio is reached, the portfolio is immunized to insure an minimum required return.D) A and B.E) A, B, and C.Answer: E Difficulty: EasyRationale: Contingent immunization insures a minimum average rate of return over time by immunizing the portfolio if and when the value of the portfolio reaches

52、 the trigger point required to insure that rate of return. Thus, the strategy is a combination active/passive strategy; but the portfolio will be immunized only if necessary.34. Some of the problems with immunization areA) duration assumes that the yield curve is flat.B) duration assumes that if shi

53、fts in the yield curve occur, these shifts are parallel.C) immunization is valid for one interest rate change only.D) durations and horizon dates change by the same amounts with the passage of time.E) A, B, and C.Answer: E Difficulty: ModerateRationale: Durations and horizon dates change with the pa

54、ssage of time, but not by the same amounts.35. If a bond portfolio manager believesA) in market efficiency, he or she is likely to be a passive portfolio manager.B) that he or she can accurately predict interest rate changes, he or she is likely to be an active portfolio manager.C) that he or she ca

55、n identify bond market anomalies, he or she is likely to be a passive portfolio manager.D) A and B.E) A, B, and C.Answer: D Difficulty: ModerateRationale: If one believes that one can predict bond market anomalies, one is likely to be an active portfolio manager.36. According to experts, most pensio

56、n funds are underfunded becauseA) their liabilities are of shorter duration than their assets.B) their assets are of shorter duration than their liabilities.C) they continually adjust the duration of their liabilities.D) they continually adjust the duration of their assets.E) they are too heavily in

57、vested in stocks.Answer: B Difficulty: Moderate37. Cash flow matching on a multiperiod basis is referred to as aA) immunization.B) contingent immunization.C) dedication.D) duration matching.E) rebalancing.Answer: C Difficulty: EasyRationale: Cash flow matching on a multiperiod basis is referred to as a dedication strategy.38. Immunization through duration matching of assets and liabilities may be ineffective or inappropria