1. Consider a perpetuity that pays $1000 per year forever. Suppose the yield on this perpetuity is 5%. What is its duration?

A) infinity B) 1000 years C) 21 years D) 5 years

2. A 3-year bond pays annual coupons at 5%. Its par value is $1000. If its yield to maturity is 4%, what is its duration and modified duration, respectively?

A) Duration = 5 years and modified duration = 4.6 years. B) Duration = 3 years and modified duration = 3.2 years. C) Duration = 2.86 years and modified duration = 2.75 years. D) Duration = 2.55 years and modified duration = 1.95 years.

3. Other things being equal, which of the following has the longest duration?

A) a 15 year bond with a 10% coupon B) a 20 year bond with a 9% coupon C) a 20 year bond with a 7% coupon D) a 10 year zero coupon bond

4. A bond currently has a price of $1,030. The present yield on the bond is 8.00%. If the yield changes from 8.00% to 8.10%, the price of the bond will go down to $1,020. The duration of this bond is __________.

A) -10.5 B) -8.5 C) 9.7 D) 10.5

5. Consider a 5-year $1000 par value bond with 10% coupon paid annually. If the yield to maturity is 7%, what is the duration?

A) 10 years B) 5.00 years C) 4.22 years D) 3.37 years E) 2.61 year