11. What is the modified duration of a 5% semiannual bond that has 3 years to maturity *

2 points

a) 2.75 years

b) 3.75 years.

c) 4.75 years

d) 5.75 years.

12. What is the modified duration of a 5% semiannual bond that has 30 years to maturity *

2 points

a) 14.47 years

b) 13.47 years.

c) 15.47 years

d) 16.47 years

13. Refer to question 10 and 11. If modified duration represents the interest rate sensitivity what conclusions can you drawn from the results as shown above? *

2 points

a)long term bonds tend to be more price sensitive than short term bonds.

b)as maturity increase, price sensitivity increase at a decreasing rate.

c) as maturity increase, price sensitivity decrease at an increasing rate.

d) both a and b

14. What happens to the modified duration of bond if interest rate goes up? *

2 points

a)Modified duration of a bond will increase if interest rate goes down

b)Modified duration of a bond will decrease if interest rate goes down

c)Modified duration of a bond will increase if interest rate goes up

d)None of the above

15. What's the general name for a government security issued by a state or local government? *

2 points

a)Notes

b)Savings bonds

c)Municipal Bonds

d)Bills

16. Which one of the following is the best explanation of a government security? *

2 points

a)A debt instrument issued by the government.

b)A bond

c)An investment in a government.

d)A bill

17. How often is interest paid on treasury notes and bonds? *

2 points

a)Annually.

b)Once, when the security reaches maturity.

c)Never, they are purchased at a discount and paid at face value.

d)Every six months.

18. If the yield on long-term securities is greater than the yield on comparable short-term securities, the yield curve is *

2 points

a)flat

b)negative slope

c)increasing

d)Decreasing

19. Which of the statements is correct about the expectations theory to the term structure of interest rates? *

2 points

a)The shape of the yield curve is the average of the market's anticipation of future short-term interest rates.

b)The shape of the yield curve reflects the fact that many investors and many issuers have preferences for different maturity bonds.

c)The shape of the yield curve reflects the market's expectation about a bond's default risk.

d)The shape of the yield curve reflects the fact that investors wish to be compensated for the greater capital uncertainty associated with long-term bonds.

20. Why is the investor of callable bonds exposed to reinvestment risk? *

2 points

a)bonds are typically redeemed when interest rates begin to fall

b)investor will receive the face value.

c)the issuer has a new opportunity to borrow at a lower rate

d)All of the above

21. Negative convexity refers to? *

2 points

a)The shape of a bond's yield curve and the extent to which a bond's price is sensitive to changing interest rates.

b)The degree to which a bond's price changes when interest rates change.

c)a and b

d)None of the above