完整word版投资学第7版Test Bank答案16.docx
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完整word版投资学第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）5.4years.
C）4.17years.
D）4.31years.
E）noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
Calculationsareshownbelow.
Yr.
CF
PVofCF@08%
Weight*Yr.
1
$80
$80/1.08=$74.07
0.0741*1=0.0741
2
$80
$80/（1.08）2=$68.59
0.0686*2=0.1372
3
$80
$80/（1.08）3=$63.51
0.0635*3=0.1905
4
$80
$80/（1.08）4=$58.80
0.0588*4=0.2352
5
$1,080
$1,080/（1.08）5=$735.03
0.7350*5=3.6750
Sum
$1000.00
4.3120yrs.（duration）
13.Thedurationofaperpetuitywithayieldof8%is
A）13.50years.
B）12.11years.
C）6.66years.
D）cannotbedetermined.
E）noneoftheabove.
Answer:
ADifficulty:
Easy
Rationale:
D=1.08/0.08=13.50years.
14.Aseven-yearparvaluebondhasacouponrateof9%andamodifieddurationof
A）7years.
B）5.49years.
C）5.03years.
D）4.87years.
E）noneoftheabove.
Answer:
CDifficulty:
Difficult
Rationale:
Calculationsareshownbelow.
Yr.
CF
PVofCF@9%
Weight*Yr.
1
$90
$82.57
0.0826X1=0.0826
2
$90
$75.75
0.0758X2=0.1516
3
$90
$69.50
0.0695X3=0.2085
4
$90
$63.76
0.0638X4=0.2552
5
$90
$58.49
0.0585X5=0.2925
6
$90
$53.66
0.0537X6=0.3222
7
$1,090
$596.26
0.5963X7=4.1741
Sum
$1000.00
5.4867years（duration）
modifiedduration=5.4867years/1.09=5.03years.
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=-6（0.01）X$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）Thebondwithadurationof2.7years.
D）Thebondwithadurationof5.15years.
E）Noneoftheabove.
Answer:
DDifficulty:
Difficult
Rationale:
DP/P=-DX[D（1+y）/（1+y）];-.023=-DX[.005/1.12];D=5.15.
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
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