. The largest component of returns for a 7-year zero-coupon bond ylelding 8% and held to maturity Is: A. capital gains, B, Interest income. C._ reinvestment income. . An investor buys a 10-year bond with a 6.5% annual coupon and a YTM of 6%. Before the first coupon payment is made, the YTM for the bond decreases to 5.5%. Assuming coupon payments are reinvested at the YTM, the investor's return when the bond Is held to maturity is: A. less than 6.0%, B. equal to 6.0%, C. greater than 6.0%. . Assuming coupon interest is reinvested at a bond's YTM, what is the interest portion of an 18-year, $1,000 par, 5% annual coupon bond's return if it is purchased at par and held to maturity? A. $576.95 B. $1,406.62. C. $1,476.95, , An investor buys a 15-year, £800,000, zero-coupon bond with an annual YTM of 7.3%. If she sells the bond after three years for £346,333 she will have: A. acapital gain. B. a capital loss. C. neither a capital gain nor a capital loss. . A 14% annual-pay coupon bond has six years to maturity. The bond is currently trading at par. Using a 25 basis point change in yield, the approximate modified duration of the bond is closest to: A. 0.392. B. 3.888. C. 3.970. . Which of the following measures is /owest for a callable bond? A. Macaulay duration, B. Effective duration. C. Modified duration. . Effective duration is more appropriate than modified duration for estimating interest rate risk for bonds with embedded options because these bonds: A. tend to have greater credit risk than option-free bonds. B. exhibit high convexity that makes modified duration less accurate, C, have uncertain cash flows that depend on the path of interest rate changes. Scanned with CamScannerA bond portfollo manager who wants to estimate the sensitivity of the portfolio's value to changes In the 5-year spot rate should use: A. akey rate duration. B. a Macaulay duration. C. an effective duration. Which of the following three bonds (similar except for yield and maturity) has the /east Macaulay duration? A bond with: A. 5% yield and 10-year maturity. B. 5% yield and 20-year maturity. C. 6% yield and 10-year maturity. Portfolio duration has limited usefulness as a measure of interest rate risk for a portfolio because it: A. assumes yield changes uniformly across all maturities. B. cannot be applied if the portfollo Includes bonds with embedded options. C. is accurate only If the portfolio’s internal rate of return is equal to its cash flow yield. The current price of a $1,000, 7-year, 5.5% semiannual coupon bond is $1,029.23, The bond's price value of a basis point is closest to: A. $0.05. B, $0.60, C. $5.74, Scanned with CamScanner. Abond has a convexity of 114.6, The convexity effect, If the yield decreases by 110 basis points, Is closest to: A. -1,673%. B. +0,693%, C. +1.673%. . The modified duration of a bond is 7.87, The approximate percentage change in price using duration only for a yleld decrease of 110 basis Points is closest to: A. -8,657%. B. +7,155%. C. +8.657%. . Assume a bond has an effective duration of 10.5 and a convexity of 97.3. Using both of these measures, the estimated percentage change in price for this bond, in response to a decline in yield of 200 basis points, is closest to: A. 19.05%. B. 22.95%. C. 24.89%, . Two bonds are similar in all respects except maturity. Can the shorter-maturity bond have greater interest rate risk than the longer-term bond? A. No, because the shorter-maturity bond will have a lower duration, B. Yes, because the shorter-maturity bond may have a higher duration. C. Yes, because short-term yields can be more volatile than long-term yields, . An investor with an investment horizon of six years buys a bond with a Modified duration of 6.0. This investment has: A. no duration gap. B. a positive duration gap. C. a negative duration gap. . Which of the following most accurately describes the relationship between liquidity and yleld spreads relative to benchmark government bond rates? All else being equal, bonds with: A. less liquidity have lower yield spreads, B. greater liquidity have higher yield spreads. C. less liquidity have higher yield spreads, Scanned with CamScanner