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Question 1 of 10
1. Question
Duration is the approximate percentage change in the price of which of the following?
I. A bond for a 100-basis-point change in interest rates.
II. A bond for a 100-basis-point change in investment rates.
III. A bond for a 100-basis-point change in coupon rates.
IV. A bond for a 50-50-basis-point change in interest rates.Correct
Duration is the approximate percentage change in the price of a bond for a 100-basis-point change in interest rates
Incorrect
Duration is the approximate percentage change in the price of a bond for a 100-basis-point change in interest rates
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Question 2 of 10
2. Question
If an investor has a bond portfolio with a duration of 6 and the market value of the portfolio is $1 million, this means that a change in interest rates of 100 basis points will change the value of the portfolio by approximately how many percent and the value of the portfolio will change by approximately how much?
I. 6% and $60,000
II. 16% and $160,000
III. 60% and $600,000
IV. .6% and $6,000Correct
If an investor has a bond portfolio with a duration of 6 and the market value of the portfolio is $1 million, this means that a change in interest rates of 100 basis points will change the value of the portfolio by approximately 6 percent and therefore the value of the portfolio will change by approximately $60,000.
Incorrect
If an investor has a bond portfolio with a duration of 6 and the market value of the portfolio is $1 million, this means that a change in interest rates of 100 basis points will change the value of the portfolio by approximately 6 percent and therefore the value of the portfolio will change by approximately $60,000.
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Question 3 of 10
3. Question
Interest rates fluctuate up and down by an amount of?
I. 100 basis points.
II. 60 basis points.
III. more than 50 basis points.
IV. less than 50 basis points.Correct
Typically, interest rates fluctuate up and down by an amount less than 50 basis points. But regardless of the rate change used, the interpretation is still that it is the approximate percentage price change for a 100-basis-point change in rates.
Incorrect
Typically, interest rates fluctuate up and down by an amount less than 50 basis points. But regardless of the rate change used, the interpretation is still that it is the approximate percentage price change for a 100-basis-point change in rates.
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Question 4 of 10
4. Question
In calculating duration or using the duration provided by financial consultants or fund managers, it is assumed that the prices calculated in the numerator are which of the following?
I. Not fixed.
II. Constantly changing.
III. Standard.
IV. Done properly.Correct
In calculating duration or using the duration provided by financial consultants or fund managers, it is assumed that the prices calculated in the numerator are done properly.
Incorrect
In calculating duration or using the duration provided by financial consultants or fund managers, it is assumed that the prices calculated in the numerator are done properly.
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Question 5 of 10
5. Question
A bond may include a provision that allows the issuer to do which of the following before the maturity date?
I. Retire
II. Call all of the issue
III. Call part of the issue
IV. ReturnCorrect
A bond may include a provision that allows the issuer to retire or call all or part of the issue before the maturity date.
Incorrect
A bond may include a provision that allows the issuer to retire or call all or part of the issue before the maturity date.
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Question 6 of 10
6. Question
From the investor’s perspective, which of the following is(are) the disadvantages to call provisions?
I. The cash flow pattern of a callable bond is not known with certainty because it is not known when the bond will be called.
II. There is a risk that the investor will have to reinvest the proceeds when the bond is called at interest rates lower than the bond’s coupon rate.
III. The investor might purchase a bond and rely on the yield of that bond as a measure of return potential.
IV. The price appreciation potential of a bond will be reduced relative to an otherwise comparable bond without a call provision.Correct
From the investor’s perspective, there are three disadvantages to call provisions. First, the cash flow pattern of a callable bond is not known with certainty because it is not known when the bond will be called.
Second,because the issuer is likely to call the bonds when interest rates have dropped below the bond’s coupon rate, the investor is exposed to reinvestment risk; this is risk that the investor will have to reinvest the proceeds when the bond is called at interest rates lower than the bond’s coupon rate.
Finally, the price appreciation potential of a bond will be reduced relative to an otherwise comparable bond without a call provision.
Incorrect
From the investor’s perspective, there are three disadvantages to call provisions. First, the cash flow pattern of a callable bond is not known with certainty because it is not known when the bond will be called.
Second,because the issuer is likely to call the bonds when interest rates have dropped below the bond’s coupon rate, the investor is exposed to reinvestment risk; this is risk that the investor will have to reinvest the proceeds when the bond is called at interest rates lower than the bond’s coupon rate.
Finally, the price appreciation potential of a bond will be reduced relative to an otherwise comparable bond without a call provision.
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Question 7 of 10
7. Question
Measuring risk effectively should include which of the following?
I. General analysis
II. Qualitative analysis
III. Quantitative analysis
IV. Calculable analysisCorrect
Measuring risk effectively should include both qualitative as well as quantitative analysis.
Incorrect
Measuring risk effectively should include both qualitative as well as quantitative analysis.
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Question 8 of 10
8. Question
Investment advisors and consultants should be familiar with each risk measurement such as?
I. How it is calculated
II. How each is different from the others
III. How one may interpret the results of each
IV. How each may result in a cause and effect on othersCorrect
Investment advisors and consultants should however be familiar with each measurement, how it is calculated, how each is different from the others, and how one may interpret the results of each.
Incorrect
Investment advisors and consultants should however be familiar with each measurement, how it is calculated, how each is different from the others, and how one may interpret the results of each.
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Question 9 of 10
9. Question
Understanding the risk measurements and their application can help form a critical foundation for which of the following?
I. Analyzing uncertainty
II. Managing risk effectively
III. Communicating with clients appropriately
IV. Provide decent information with investorsCorrect
Understanding these measurements and their application help form a critical foundation for analyzing uncertainty, managing risk effectively, and communicating with clients appropriately.
Incorrect
Understanding these measurements and their application help form a critical foundation for analyzing uncertainty, managing risk effectively, and communicating with clients appropriately.
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Question 10 of 10
10. Question
Which of the following is(are) the most common way to measure investment risk?
I. By looking at asset
II. By looking at portfolio volatility
III. By looking at news forecast
IV. By looking at the calculationsCorrect
The most common way to measure investment risk today is by looking at asset or portfolio volatility.
Incorrect
The most common way to measure investment risk today is by looking at asset or portfolio volatility.