Question 1)

Which of the following two bonds is more price-sensitive to changes in interest rates?

1. A par value bond, X, with 5 years tomaturity and a 10% coupon rate.

2. A zero-coupon bond, Y, with 5 years to maturity and a 10% yield-to-maturity.

a) Bond Y because of the lower duration.

b) Bond X because of the longer duration.

c) Bond X because of the lower duration.

d) It is impossible to tell without further information

e) Bond Y because of the longer duration.

Question 2)

Which one of the following $1000 par value 12% annual coupon bonds experiences a price change of $23 when the required yield changes by 50 basis points, assuming they are initially trading at par, and using the modified duration approximation?

a) A bond with a Macaulay duration of 2.30 years

b) A bond with a Macaulay duration of 6.00 years

c) A bond with a Macaulay duration of 4.88 years

d) A bond with a Macaulay duration of 4.60 years

e) A bond with a Macaulay duration of 5.15 years