1. Define reinvestment risk and price risk. 2. What is the effect of a decrease in interest rates on a bond's price and reinvestment rate? How about the effect of an increase in interest rates? 3. What is duration (in words)? 4. What is the mathematical expression for Macaulay duration? Why do we say that a bond's duration is the weighted average maturity of the bond's cash flows? 5. What is the mathematical expression for modified duration? 6. What are the primary factors influencing a bond's duration? What is the relation between each of this factors and duration? Make sure that you understand why the relation is as is. 7. How can we use duration to calculate the percentage change in the price of a bond if interest rates increase by 1%? 8. What are the limitations of using duration to assess price sensitivity to interest rates? 1. Define reinvestment risk and price risk. 2. What is the effect of a decrease in interest rates on a bond's price and reinvestment rate? How about the effect of an increase in interest rates? 3. What is duration (in words)? 4. What is the mathematical expression for Macaulay duration? Why do we say that a bond's duration is the weighted average maturity of the bond's cash flows? 5. What is the mathematical expression for modified duration? 6. What are the primary factors influencing a bond's duration? What is the relation between each of this factors and duration? Make sure that you understand why the relation is as is. 7. How can we use duration to calculate the percentage change in the price of a bond if interest rates increase by 1%? 8. What are the limitations of using duration to assess price sensitivity to interest rates