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Question 1 of 10
1. Question
Calculate the modified duration for a bond with the following properties, if interest rates were to increase by 1%:
Macaulay Duration = 5 years
Yield to Maturity = 10%
1 Coupon Payment Per yearCorrect
Modified duration = Macaulay duration
_________________
(1 + yield to maturity ÷
number of coupons per year)
= 5 ÷ (1 + 0.1/1)
= 4.55 yearsIncorrect
Modified duration = Macaulay duration
_________________
(1 + yield to maturity ÷
number of coupons per year)
= 5 ÷ (1 + 0.1/1)
= 4.55 years -
Question 2 of 10
2. Question
Based on interest rate movements and the maturity of the bond, bond duration can be a measure of which of the following?
Correct
Duration gives the investor an idea of the value of a bond based on whether interest rates increase or decline. Longer duration periods tend to make the value of the bond fluctuate more because of the fluid nature of interest rates. Bond duration can also be a measure of volatility based on interest rate movements and the maturity of the bond.
Incorrect
Duration gives the investor an idea of the value of a bond based on whether interest rates increase or decline. Longer duration periods tend to make the value of the bond fluctuate more because of the fluid nature of interest rates. Bond duration can also be a measure of volatility based on interest rate movements and the maturity of the bond.
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Question 3 of 10
3. Question
Which of the following best defines callable bonds?
Correct
Callable bonds are those bonds that are issued with a clause stating times and conditions that a bond may be called back from investors, or redeemed early.
Incorrect
Callable bonds are those bonds that are issued with a clause stating times and conditions that a bond may be called back from investors, or redeemed early.
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Question 4 of 10
4. Question
Yield-to-call as related to the bond market is only applicable to which of the following?
Correct
Yield-to-call as related to the bond market is only applicable to callable bonds.
Incorrect
Yield-to-call as related to the bond market is only applicable to callable bonds.
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Question 5 of 10
5. Question
Yield to maturity is a function of the following except:
Correct
The yield-to-maturity, or YTM, of a bond is a characteristic that applies to all bonds. YTM is a function of the price an investor paid for a bond (whether at issue, a premium, or discount), the fixed rate of interest paid, and the time left to maturity.
Incorrect
The yield-to-maturity, or YTM, of a bond is a characteristic that applies to all bonds. YTM is a function of the price an investor paid for a bond (whether at issue, a premium, or discount), the fixed rate of interest paid, and the time left to maturity.
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Question 6 of 10
6. Question
A bond offers a yield to maturity of 4% and makes coupon payments biannually. You are told that a 1% increase in interest rates would lead to a modified duration of exactly 10 years. What is the current duration?
Correct
Modified duration = Macaulay duration
_________________
(1 + yield to maturity ÷
number of coupons per year)
10 years = X ÷ (1 + 0.04/2)
The current duration is 10.2 yearsIncorrect
Modified duration = Macaulay duration
_________________
(1 + yield to maturity ÷
number of coupons per year)
10 years = X ÷ (1 + 0.04/2)
The current duration is 10.2 years -
Question 7 of 10
7. Question
The coupon of a bond is best defines as:
Correct
The coupon of a bond is the fixed rate of interest paid to the investor holding the bond.
Incorrect
The coupon of a bond is the fixed rate of interest paid to the investor holding the bond.
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Question 8 of 10
8. Question
The relationship between the interest rate of a bond and its value can best be described as:
Correct
The relationship exhibited between interest rates, or the coupon, and the value of bonds is an inverse relationship; as one increases, the other declines.
Incorrect
The relationship exhibited between interest rates, or the coupon, and the value of bonds is an inverse relationship; as one increases, the other declines.
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Question 9 of 10
9. Question
When categorized according to the way that the bond repayments can be financed, how many types of municipal bonds are there?
Correct
There are three main types of municipal bonds, categorized according to the way that the bond repayments can be financed.
Incorrect
There are three main types of municipal bonds, categorized according to the way that the bond repayments can be financed.
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Question 10 of 10
10. Question
Which type of municipal bond is issued to pay for improvements that benefit a community, but don’t produce income.
Correct
General obligation (GO) bonds are the first type. These are issued to pay for improvements that benefit a community, but don’t produce income.
Incorrect
General obligation (GO) bonds are the first type. These are issued to pay for improvements that benefit a community, but don’t produce income.