1096 words - 5 pages

Dr. Sudhakar Raju

FN 6700

PRACTICE QUESTIONS FOR EXAM 1

1.) Find the YTM (yield-to-maturity) of a 20-year zero coupon bond that is selling for $372.50. Assume annual compounding and a maturity value of $1,000).

a) 5.1%

b) 8.8%

c) 10.1%

d) 13/4%

2.) A semi-annual bond with a 12% coupon, 10 years to maturity and selling at 88 (i.e. $880) has yield-to-maturity of:

a) 14.29%

b) 13.65%

c) 12.33%

d) Less than 12%

3.) A 10% annual pay, 20 year bond is priced at $850.61 to yield 12%; if it paid interest semiannually (rather than annually), but continued to be priced $850.61, the resulting YTM would be:

a) Less than 12%

b) More than 12%

c) Less than 10%

d) Cannot be ...view middle of the document...

What is the bond’s yield to maturity?

a) 7.0%

b) 7.3%

c) 8.0%

d) 8.1%

9.) Consider a five-year bond with a 10 percent coupon that has a YTM of 8%. If interest rates remain constant, one year from now the price of this bond will be:

a) Higher.

b) Lower.

c) Same.

d) Cannot be determined.

10.) Which of the following statements about duration characteristics are true?

I. The duration of a coupon bond will always be less than its term to maturity.

II. There is generally an inverse relationship between term to maturity and duration.

III. There is a positive relationship between coupon and duration.

IV. There is an inverse relationship between yield to maturity and duration.

a) I and II only

b) I and IV only

c) II and III only

d) III and IV only

11.) Which one of the following is an incorrect statement concerning duration?

a) The higher the yield-to-maturity, the greater the duration.

b) The higher the coupon, the shorter the duration.

c) The difference in duration is small between 2 bonds each maturing in more than 15 years.

d) For a zero coupon bond, duration is the same, or very close to, the bond’s term-to-maturity.

12). When interest rates decline, the duration of a 30-year bond selling at a premium:

a) Increases

b) Decreases

c) Remains the same

d) Increases at first, then declines

13.) A fixed income manager wants to take advantage of a forecasted decline in interest rates over the next several months. Which of the following combinations of maturity and coupon rate would most likely result in the largest increase in portfolio value?

Maturity Coupon Rate

a.) 2015 10%

b.) 2015 12%

c.) 2030 10%

d.) 2030 12%

14.) Identify the bond that has the longest duration?

a) Perpetual par bond with 8% coupon

b) 20-year maturity with a 12% coupon

c) 15-year maturity with a 0% coupon

d) 15-year maturity with a 15% coupon

15.) Everything...

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