FN 10
A bond is ______ if the issuer has the right to buy it back before it matures.
callable
True or false: All else equal, the price of a discount bond will decline over time as it approaches maturity.
False
True or false: An investor is guaranteed to earn at least the YTM.
False
True or false: Callable bonds always have a call price equal to par value. True false question.
False
True or false: The uncertainty about future portfolio value that results from the need to reinvest bond coupons at yields not known in advance is called price risk. True false question.
False
The yield value of a 32nd is equal to the change in yield to maturity that would equal a 1/ ________ change in bond price.
32
True or false: Two bonds with the same maturity will also have the same duration.
False
The uncertainty about the future or target date portfolio value that results from the need to reinvest bond coupons at yields that cannot be predicted in advance is called _____ risk.
reinvestment rate
The quoted price for a bond is the ________ (clean/dirty) price, and the price you actually pay is the ________ (clean/dirty) price.
clean, dirty
A bond with a YTM of 10% and a coupon rate of 8% will trade at (a) _______.
discount
The coupon rate is the bond's annual coupon _____, whereas the current yield is the bond's annual coupon divided by its market price.
divided by its par value
The change in bond price resulting from a change in yield to maturity of one basis point is the ________.
dollar value of an 01
The change in bond price resulting from a change in yield to maturity of one basis point is the ________. Multiple choice question.
dollar value of an 01
A bond's ______ is a measure of its sensitivity to changes in bond yields.
duration
Dynamic immunization is the periodic rebalancing of a dedicated bond portfolio to maintain a ________ that matches the target maturity date.
duration
To immunize a dedicated portfolio, an investor needs to match its __________ to the portfolio's target date. Multiple choice question.
duration
The strategy of periodically rebalancing a dedicated bond portfolio to maintain a portfolio duration matched to a specific target date is called _____ immunization.
dynamic
A straight bond is an IOU that obligates the issuer to pay the bondholder a _____ at the bond's maturity along with constant, periodic interest payments during the life of the bond.
fixed sum of money
All else equal, an investor who sells a bond following a decline in interest rates will have a realized yield that is _________ than the promised YTM.
higher
All else equal, an investor who sells a bond following a decline in interest rates will have a realized yield that is _________ than the promised YTM. Multiple choice question.
higher
_________(Low/High) coupon bonds are more sensitive to changes in interest rates.
low
The bond's annual coupon divided by its ______ value is called the coupon rate. (Enter one word per blank.)
par
The uncertainty about the future or target date portfolio value that results from the need to reinvest bond coupons at yields that cannot be predicted in advance is called _____ risk. Multiple choice question.
reinvestment rate
All else equal, the higher a bond's coupon, the ______ (shorter/longer) its duration.
shorter
The most common type of bond is the so-called _______ bond.
straight
True or false: If interest rates rise, bond prices will fall.
True
True or false: Modified duration is a variation of Macaulay duration.
True
True or false: Price risk and reinvestment risk tend move in opposite directions, meaning they tend to offset each other.
True
True or false: The dirty price is generally higher than the clean price.
True
True or false: Two bonds with the same maturity will also have the same duration. True false question.
False
True or false: The dirty price is generally higher than the clean price. True false question.
True
True or false: The longer a bond's maturity, the longer is its duration.
True
The equation for the modified duration is as follows: Multiple choice question.
Macaulay duration/(1 + YTM/2)
True or false: The price of a bond is the present value of its coupons and par value.
True
The ____ is the discount rate that equates a bond's price with the present value of its cash flows. It is also called the promised yield.
YTM
