Using duration and convexity approximation, compute the percentageprice change on a 10-year fixed coupon bond, if the interest rate increases by 1%. The modified duration of the bond is 6 years, and convexity is 200 year2.
A. -6%
B. -5%
C. 7%
D. -7%

3. Among the four bonds listed below, which one has the least amount of interest rate risk?

A. 5-year floating rate note with coupon rate = 6 month LIBOR + 20bp, coupons reset every six months

B. 5-year inverse floater with coupon rate = 12% - 6 month LIBOR, coupons reset every six months

C. 5-year zero coupon bond

D. 5-year 6% coupon bond

5. A money markets desk holds a floating-rate note with an eight-year maturity. The interest rate is floating at three-month LIBOR rate, reset quarterly. The next reset is in one month. What is the approximate duration of the floating-rate note?

A. 3 months

B. 1 month

C. 2 months

D. 8 years

6. A three-year risk-free 8% coupon bond (coupons paid annually) is trading at par. One- and two-year spot rates are 6.5 percent and 7.0 percent, respectively. The three-year spot rate is closest to ________.

A. 8.1%

B. 9.2%

C. 9.0%

D. 10.1%

8. Which of the following statements about duration characteristics are true?

I. The duration of an inverse floater can be higher than its term to maturity.

II. There is generally an inverse relationship between coupon rate and duration.

III. Duration of a 5-year floating rate note (with quarterly coupon payments) is very close to five years.

IV. Using duration approximation to calculate bond price changes is most accurate when the yield change is large.

A. II and IV only.

B. I and IV only.

C. I and II only.

D. II and III only.

9. A portfolio manager has a bond position worth USD 698,000. The position has a modified duration of 8 years and a convexity of 150 year2. Using duration and convexity approximation, how much does the value of the position change if interest rates increase by 76 basis points?  (Round your answer to the whole dollar, and include the sign of the change. That is, if the value of the position goes down, include a negative sign in your answer.)

10. A 7-year zero-coupon bond carries a yield to maturity of 6%. Assuming semi-annual compounding and $1,000 par value, the price of this bond is $_________.  (Round to the nearest cent. For example, 654.32)