True and False: Please answer true or false to the following questions.

a. ____ Given a 6-month spot rate of 5% and a 1-year spot rate of 6%, the six-month rate six months from now will be about 6.5%.

b. ____ Duration is a nonlinear estimate of the bond price/market yield relationship.

c. ____ One reason that Treasury bonds are considered to be risk-free is that they are free of credit rate risk.

d. ____ Reinvestment risk for a holder of an existing bond is less concerning when market interest rates are declining.

e. ____ If I am short a bond, I am hoping that market interest rates will rise.

f. ____ If I am long a bond, I am hoping that market interest rates will fall.

g. ____ A bond that is more liquid will typically have a higher price than a bond that is less liquid.

h. ____ Macauley duration is measured as a percent change while duration (also known as modified duration) is measured in units of time.

i. ____ If I were to calculate the convexity of the same bond at two different prices, the convexity would generally be higher when the bond is priced at a discount than when the bond is priced at a premium.

j. ____ The duration of a portfolio is equal to the weighted average of the durations of the individual bonds in the portfolio, with the weights based on each bonds market value.

k. ____ In constructing a DV01 hedge, if your hedge ratio is less than 1, this implies that the bond you are using to hedge with is more interest-rate sensitive than the bond which you are protecting.

l. ____ Reinvestment risk is a less serious issue for a bond with a longer maturity than for a bond with a shorter maturity.