1- Which one of the following statements is true concerning the duration of a perpetuity?

A)The duration of 15% yield perpetuity that pays $100 annually is longer than that of a 15% yield perpetuity that pays $200 annually.

B)The duration of a 15% yield perpetuity that pays $100 annually is shorter than that of a 15% yield perpetuity that pays $200 annually.

C)The duration of a 15% yield perpetuity that pays $100 annually is equal to that of 15% yield perpetuity that pays $200 annually.

D)the duration of a perpetuity cannot be calculated.

E)None of the above.

2- You have an obligation to pay $1,488 in four years and 2 months.In which bond would you invest your $1,000 to accumulate this amount, with relative certainty, even if the yield on the bond declines to 9.5% immediately after you purchase the bond?

A)a 6-year; 10% coupon par value bond

B)a 5-year; 10% coupon par value bond

C)a 5-year; zero-coupon bond

D)a 4-year; 10% coupon par value bond

E)none of the above

3- Identify the bond that has the longest duration(no calculations are necessary).

A)20-year maturity with an 8% coupon.

B)20-year maturity with a 12% coupon.

C)20-year maturity with a 0% coupon.

D)10-year maturity with a 15% coupon.

E)12-year maturity with a 12% coupon.

4- Which one of the following par value 12% coupon bonds experiences a price change of $23 when the market yield changes by 50 basis points?

A)The bond with a duration of 6 years.

B)The bond with a duration of 5 years.

C)The bond with a duration of 2.7 years.

D)The bond with a duration of 5.15 years.

E)None of the above.

5- 26.The duration of a par value bond with a coupon rate of 8% and a remaining time to

maturity of 5 years is

A)5 years.

B)5.4 years.

C)4.17 years.

D)4.31 years.

E)none of the above.

6- 26.You have purchased a bond for $892.The bond has a coupon rate of

4%, pays interest annually, has a face value of $1,000, 4 years to maturity, and a yield

to maturity of 7.2%.The bond's duration is 3.6481 years.

You expect that interest rates will fall by 30 basis points later today.Find the approximate percentage change in the bond's price and find the new price of the bond from this calculation.

Use your calculator to do the regular present value calculations to find the bond's new price at its new yield to maturity.

What is the amount of the difference between the two answers?Why are your answers different?