Question 9

The one-year zero-coupon bond with face value of $100 is priced at $96 and the two-year zero-coupon bond with face value of $100 is priced at $90. What is the price of a two-year bond with face value of $1000 that pays a $150 coupon annually?

a) $1179

b) $1170

c) $1169

d) $1185

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Question 10

Which of the following about duration is not true?

a) Duration over-estimates the bond value loss if interest rate increases.

b) Duration under-estimates the bond value gain if interest rate decreases.

c) Duration works best if interest rate change is small.

d) Duration of a zero-coupon bond is its time-to-maturity.

e) Duration can be computed from the second derivative of the bond pricing equation wrt the YTM.