1.Which of the following bonds is most sensitive to interest rate changes?

A. 5-year maturity, 5% coupon

B. 5-year maturity, 10% coupon

C. 13-year maturity, 5% coupon

D. 13-year maturity, 10% coupon

2.You manage a pension fund, and your liabilities consist of two payments of $20 million in year 10 and $30 million in year 30. The yield curve is flat at 5%. The modified duration of your liabilities is

A. 16.4

B. 17.2

C. 22.1

D. None of the above

3.A bank finds that its assets have lower duration than its liabilities. To hedge its interest rate risk the bank can

A. Enter in an interest rate swap in which it pays (receives) the floating (fixed) rate.

B. Buy high-duration bonds and sell low-duration bonds.

C. Enter in a barbell strategy.

D. All of the above.