FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 11: Managing Bond Portfolios

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

To create a portfolio with a duration of 4 years using a 5 year zero-coupon bond and a 3 year 8% annual coupon bond with a yield to maturity of 10%,one would have to invest ________ of the portfolio value in the zero-coupon bond.

A) 50%
B) 55%
C) 60%
D) 75%

E) All of the above
F) None of the above

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

As a result of bond convexity an increase in a bond's price when yield to maturity falls is ________ the price decrease resulting from an increase in yield of equal magnitude.

A) greater than
B) equivalent to
C) smaller than
D) The answer is indeterminate.

E) B) and C)
F) A) and B)

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

The duration of a bond normally increases with an increase in _________. I.term-to-maturity II.yield-to-maturity. III.coupon rate

Given its time to maturity the duration of a zero coupon bond is _________.

Which of the following set of conditions will result in a bond with the greatest price volatility?

When bonds sell above par,what is the relationship of price sensitivity to rising interest rates?

A forecast of bond returns based largely on a prediction of the yield curve at the end of the investment horizon is called a _________.

The duration of a portfolio of bonds can be calculated as _______________.

The historical yield spread between the AA bond and the AAA bond has been 25 basis points.Currently the spread is only 9 basis points.If you believe the spread will soon return to its historical levels you should ________________________.

Bond portfolio immunization techniques balance ________ and ________ risk.

All other things equal,which of the following has the longest duration?

What strategy might an insurance company employ to ensure that it will be able to meet the obligations of annuity holders?

Compute the duration of an 8%,5-year corporate bond with a par value of $1000 if yield to maturity of 10%.

You have a 25 year maturity 10% coupon,10% yield bond with duration of 10 years and a convexity of 135.50.If interest rate were to fall 125 basis points your predicted new price for the bond (including convexity) is _________.

A pension fund has an average duration of its liabilities equal to 15 years.The fund is looking at 5 year maturity zero coupon bonds and 4% yield perpetuities to immunize its interest rate risk.How much of its portfolio should it allocate to the zero coupon bonds to immunize if there are no other assets funding the plan?

You have an investment horizon of 6 years.You choose to hold a bond with a duration of 10 years.Your realized rate of return will be larger than the promised yield on the bond if ___________________.

As compared with equivalent maturity bonds selling at par,deep discount bonds will have ________.

Advantages of cash flow matching and dedicated strategies include ______. I.once the cash flows are matched there is no need for rebalancing II.cash flow matching typically earns a higher rate of return than active bond portfolio management III.financial institution's liabilities often exceed the maturity of available bonds,making cash matching even more desirable

All other things equal,a bond's duration is _________.

An increase in a bond's yield to maturity results in a price decline that is ________ the price increase resulting from a decrease in yield of equal magnitude.