Question
1. Which of the following bonds has the lowest interest rate risk? A. 3-year 5% corporate bond. B. 30-year 5% corporate bond. C. 30-year zero-coupon
1. Which of the following bonds has the lowest interest rate risk?
A. 3-year 5% corporate bond.
B. 30-year 5% corporate bond.
C. 30-year zero-coupon corporate bond.
2. If the effective duration of a callable bond is 5 and the negative convexity adjustment is 1%. If yield were to fall by 100 basis point, the duration combined with convexity would:
A. Produce a price change of 5%
B. Produce a price change of less than 5%.
C. Produce a price change of more than 5%.
3. Credit rating agencies may assign different credit rating to the debt securities from the same issuer. This process is known as:
A. Notching.
B. Seniority ranking.
C. Structural subordination.
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