4. A putable bond offers a coupon rate of 8%, while market yields currently stands at 12%.An increase in market yields would result in: A. A decrease in the price of the putable bond, but the decrease in price would be less than the price decrease that a similar straight bond would undergo. B. An increase in the price of the putable bond, but the increase in price would be less than the price increase that a similar straight bond would undergo. C. A decrease in the price of the putable bond, and the decrease in price would be greater than the price decrease that a similar straight bond would undergo. 5. Consider the following statements: Statement 1: At yield levels close to the bond's coupon rate, an investor in a callable bond has more to gain from a decrease in yields than she has to lose from an increase in yields. Statement 2: The larger the change in yields the more inaccurate the price estimate based on duration alone, and the lower the convexity adjustment. Which of the following is most likely? A. Both Statements are incorrect B. Only Statement 1 is correct C. Only Statement 2 is correct 6. For a callable bond, which of the following is most likoly regarding convexity at high and low yield levels? 7. For an option-free bond, which of the following is most likely regarding convexity at high and low yield levels? 8. At low yields, investing in a pre-payable security versus an option-free bond will more likbly entail: A. Higher reinvestment risk only B. Higher interest rate risk only C. Higher reinvestment risk and higher interest rate risk. 9. Which of the following is most likbly regarding a putable bond- A. The put option cushions the price reduction at high interest rates B. The put option exacerbates the price reduction at low interest rates. C. The put option effectively increases the yield on a putable bond. 10. Which of the following is most likely regarding the use of effective and modified duration to evaluate the interest rate risk in bonds: A. Modified duration can be used for option-free bonds and effective duration can be used for bonds with embedded options. B. Modified duration can be used for option-free bonds and bonds with embedded options. 11. Which of the following measures of duration may be used to evaluate option-free bonds? A. Only effective duration B. Only effective and Macaulay duration C. Effective, Macaulay and modified duration. 12. Which of the following measures of duration may be used to evaluate callable bonds? A. Only effective duration B. Only Macaulay duration C. Effective and Macaulay duration. 13. Which of the following is least likely: A. Duration is the second derivative of the price-yield profile. B. Duration is the weighted average time it takes for all the bond's cash flows to be received. C. Duration is the approximate change in the price of a bond in response to a 100 basis point change in yields. 14. Which of the following measures of convexity may be used to value a putable bond? A. Modified and effective convexity B. Modified convexity only C. Effective convexity only 15. Consider the following statements: Statement 1: Two bonds with the same duration must have the same convexity. Statement 2: It is not possible for a bond that matures in 10 years to have a duration of 14 . Which of the following is most likely? A. Only Statement 1 is correct. B. Only Statement 2 is correct C. Both Statements are incorrect A 10-year semiannual-pay coupon bond is currently trading for $942.56 to yield 9.8%. If yields decline by 50 basis points, the bond's price will rise to $956.87 and if yields rise by 50 basis points, its price will move to $930.24. 16. The effective duration of this bond is closest to: A. 5.65 B. 0.028 C. 2.83 17. The effective convexity of this bond is closest to: A. 84.46 B. 42.23 C. 21.11 18. Based on an effective duration of 8.35 , the approximate change in the price of a bond that is currently priced at $1,023,45 in response to a 50 basis point increase in yields is closest to: A. 4.175% B. 8.3% C. 8.3% 19. An investor owns a portfolio that has 60% of its current market value invested in Bond A and 40% in Bond B. Bond A has a duration of 4.5, while Bond B has a duration of 8.3 . Initially when the investor purchased the securities, he put an equal amount of money in each of the securities even though the par value of Bond A is twice the par value of Bond B. The duration of the investor's portfolio is closest to: A. 6.4 B. 6.0 C. 5.8 A 10-year bond that is currently trading at $1,032.77 has an effective duration of 8.58 and a convexity of 25.13 . 20. The price of the bond if yields were to rise by 80 basis points would be closest to: A. $963.54 B. $960.22 C. $1,103.46 21. The price of the bond if yields were to fall by 80 basis points would be closest to: A. $1,103.46 B. $1,105.32 C. $1,102 22. A callable bond most likely exhibits: A. Positive convexity at lower yields and negative convexity at higher yields B. Negative convexity at all yield levels C. Negative convexity at lower yields and positive convexity at higher yields. 23. A putable bond most likely exhibits: A. Positive convexity at all yield levels B. Negative convexity at higher yields and positive convexity at low yields C. Positive convexity at higher yields and negative convexity at low yields. 24. The greater the curvature of the price yield profile of a bond: A. The greater the duration at all yield levels. B. The greater the convexity adjustment required to estimate the bond's price accurately in response to a change in yields C. The greater the yield curve risk of the bond. 25. A bond currently has an effective duration of 7.83 . The percentage change in the price of the bond in response to a 82 basis point upward movement in yields is closest to: A. +6.42% B. 6.42% C. +5..85% 26. Which of the following statements is least likely? A. In response to an increase in interest rate, the duration based price estimate for a bond underestimates the actual price of the bond. B. In response to fall in interest rates, the duration based price estimate for a bond overestimates the change in the bond's price. C. In response to rise in interest rates, the duration based price estimate for a bond overestimates the fall in the bond's price. 4. A putable bond offers a coupon rate of 8%, while market yields currently stands at 12%.An increase in market yields would result in: A. A decrease in the price of the putable bond, but the decrease in price would be less than the price decrease that a similar straight bond would undergo. B. An increase in the price of the putable bond, but the increase in price would be less than the price increase that a similar straight bond would undergo. C. A decrease in the price of the putable bond, and the decrease in price would be greater than the price decrease that a similar straight bond would undergo. 5. Consider the following statements: Statement 1: At yield levels close to the bond's coupon rate, an investor in a callable bond has more to gain from a decrease in yields than she has to lose from an increase in yields. Statement 2: The larger the change in yields the more inaccurate the price estimate based on duration alone, and the lower the convexity adjustment. Which of the following is most likely? A. Both Statements are incorrect B. Only Statement 1 is correct C. Only Statement 2 is correct 6. For a callable bond, which of the following is most likoly regarding convexity at high and low yield levels? 7. For an option-free bond, which of the following is most likely regarding convexity at high and low yield levels? 8. At low yields, investing in a pre-payable security versus an option-free bond will more likbly entail: A. Higher reinvestment risk only B. Higher interest rate risk only C. Higher reinvestment risk and higher interest rate risk. 9. Which of the following is most likbly regarding a putable bond- A. The put option cushions the price reduction at high interest rates B. The put option exacerbates the price reduction at low interest rates. C. The put option effectively increases the yield on a putable bond. 10. Which of the following is most likely regarding the use of effective and modified duration to evaluate the interest rate risk in bonds: A. Modified duration can be used for option-free bonds and effective duration can be used for bonds with embedded options. B. Modified duration can be used for option-free bonds and bonds with embedded options. 11. Which of the following measures of duration may be used to evaluate option-free bonds? A. Only effective duration B. Only effective and Macaulay duration C. Effective, Macaulay and modified duration. 12. Which of the following measures of duration may be used to evaluate callable bonds? A. Only effective duration B. Only Macaulay duration C. Effective and Macaulay duration. 13. Which of the following is least likely: A. Duration is the second derivative of the price-yield profile. B. Duration is the weighted average time it takes for all the bond's cash flows to be received. C. Duration is the approximate change in the price of a bond in response to a 100 basis point change in yields. 14. Which of the following measures of convexity may be used to value a putable bond? A. Modified and effective convexity B. Modified convexity only C. Effective convexity only 15. Consider the following statements: Statement 1: Two bonds with the same duration must have the same convexity. Statement 2: It is not possible for a bond that matures in 10 years to have a duration of 14 . Which of the following is most likely? A. Only Statement 1 is correct. B. Only Statement 2 is correct C. Both Statements are incorrect A 10-year semiannual-pay coupon bond is currently trading for $942.56 to yield 9.8%. If yields decline by 50 basis points, the bond's price will rise to $956.87 and if yields rise by 50 basis points, its price will move to $930.24. 16. The effective duration of this bond is closest to: A. 5.65 B. 0.028 C. 2.83 17. The effective convexity of this bond is closest to: A. 84.46 B. 42.23 C. 21.11 18. Based on an effective duration of 8.35 , the approximate change in the price of a bond that is currently priced at $1,023,45 in response to a 50 basis point increase in yields is closest to: A. 4.175% B. 8.3% C. 8.3% 19. An investor owns a portfolio that has 60% of its current market value invested in Bond A and 40% in Bond B. Bond A has a duration of 4.5, while Bond B has a duration of 8.3 . Initially when the investor purchased the securities, he put an equal amount of money in each of the securities even though the par value of Bond A is twice the par value of Bond B. The duration of the investor's portfolio is closest to: A. 6.4 B. 6.0 C. 5.8 A 10-year bond that is currently trading at $1,032.77 has an effective duration of 8.58 and a convexity of 25.13 . 20. The price of the bond if yields were to rise by 80 basis points would be closest to: A. $963.54 B. $960.22 C. $1,103.46 21. The price of the bond if yields were to fall by 80 basis points would be closest to: A. $1,103.46 B. $1,105.32 C. $1,102 22. A callable bond most likely exhibits: A. Positive convexity at lower yields and negative convexity at higher yields B. Negative convexity at all yield levels C. Negative convexity at lower yields and positive convexity at higher yields. 23. A putable bond most likely exhibits: A. Positive convexity at all yield levels B. Negative convexity at higher yields and positive convexity at low yields C. Positive convexity at higher yields and negative convexity at low yields. 24. The greater the curvature of the price yield profile of a bond: A. The greater the duration at all yield levels. B. The greater the convexity adjustment required to estimate the bond's price accurately in response to a change in yields C. The greater the yield curve risk of the bond. 25. A bond currently has an effective duration of 7.83 . The percentage change in the price of the bond in response to a 82 basis point upward movement in yields is closest to: A. +6.42% B. 6.42% C. +5..85% 26. Which of the following statements is least likely? A. In response to an increase in interest rate, the duration based price estimate for a bond underestimates the actual price of the bond. B. In response to fall in interest rates, the duration based price estimate for a bond overestimates the change in the bond's price. C. In response to rise in interest rates, the duration based price estimate for a bond overestimates the fall in the bond's price