1)

When the investors investment horizon is less than the Macaulay duration of the bond she owns:

a.

reinvestment risk dominates, and the investor is at risk of lower rates.

b.

market price risk dominates, and the investor is at risk of higher rates.

c.

the investor is hedged against interest rate risk.

2)

An investor buys a 6% annual payment bond with three years to maturity. The bond has a yield-to-maturity of 8% and is currently priced at 94.845806 per 100 of par. The bonds Macaulay duration is closest to:

a.

2.83.

b.

2.62.

c.

2.78.

3)

Which of the following statements about duration is correct? A bonds:

a.

effective duration is a measure of yield duration.

b.

modified duration cannot be larger than its Macaulay duration (assuming a positive yield-to-maturity).

c.

modified duration is a measure of curve duration.

4)

The second-order effect on a bonds percentage price change given a change in yield-to-maturity can be best described as:

a.

yield volatility.

b.

convexity.

c.

duration.

5)

An issuer credit rating usually applies to a companys:

a.

secured debt.

b.

senior unsecured debt.

c.

subordinated debt.