Question 1

9-49 Convexity is a desirable effect to a portfolio manager because it is easy to measure and price.

Accepted Answer

A) True 
 B)False

Question 2

9-89 Use the duration model to approximate the change in the market value (per $100 face value) of two-year loans if interest rates increase by 100 basis points.

Accepted Answer

A)  -$1.756.
B)  -$1.775.
C)  +$98.24.
D)  -$1.000.
E)  +$1.924.F) C) and D)
G) A) and B)

Question 3

9-95 What is the duration of this bond?

Accepted Answer

A)  5 years.
B)  4.31 years.
C)  3.96 years.
D)  5.07 years.
E)  Not enough information to answer.F) D) and E)
G) A) and C)

Question 4

9-99 What is the bank's leverage adjusted duration gap?

Accepted Answer

A)  +6.73 years.
B)  +0.29 years.
C)  -6.44 years.
D)  +6.51 years.
E)  0 years.F) A) and B)
G) A) and C)

Question 5

9-110.If yields increase by 10 basis points,what is the approximate price change on the $100,000 Treasury note? Use the duration approximation relationship.

Accepted Answer

A)  +$188.69.
B)  +$16.05.
C)  -$1,605.05.
D)  -$16.05.
E)  +$160.51.F) B) and D)
G) A) and D)

Question 6

9-27 Using a fixed-rate bond to immunize a desired investment horizon means that the reinvested coupon payments are not affected by changes in market interest rates.

Accepted Answer

A) True 
 B)False  False

Question 7

9-87 What is the duration of the two-year loan (per $100 face value) if it is selling at par?

Accepted Answer

A)  2.00 years.
B)  1.92 years.
C)  1.96 years.
D)  1.00 year.
E)  0.91 years.F) C) and D)
G) B) and C) B

Question 8

9-58 Managers can achieve the results of duration matching by using these to hedge interest rate risk.

Accepted Answer

A)  Rate sensitive assets.
B)  Rate sensitive liabilities.
C)  Coupon bonds.
D)  Consol bonds.
E)  Derivatives.F) C) and E)
G) A) and B)

Question 9

9-45 The rate of change in duration values is less than the rate of change in maturity.

Accepted Answer

A) True 
 B)False

Question 10

9-118 What is the duration of the municipal notes (the value of x) ?

Accepted Answer

A)  1.94 years.
B)  2.00 years.
C)  1.00 years.
D)  1.81 years.
E)  0.97 years.F) A) and B)
G) B) and E)

Question 11

9-77 What is the price of the bond if market interest rates are 5 percent?

Accepted Answer

A)  $100,952.38.
B)  $101,238.10.
C)  $100,963.71.
D)  $100,000.00.
E)  $101,108.27.F) B) and E)
G) All of the above

Question 12

9-83 What is the FI's leverage-adjusted duration gap?

Accepted Answer

A)  0.91 years.
B)  0.83 years.
C)  0.73 years.
D)  0.50 years.
E)  0 years.F) A) and B)
G) A) and C)

Question 13

9-20 Larger coupon payments on a fixed-income asset cause the present value weights of the cash flows to be lower in the duration calculation.

Accepted Answer

A) True 
 B)False

Question 14

9-53 Which of the following is indicated by high numerical value of the duration of an asset?

Accepted Answer

A)  Low sensitivity of an asset price to interest rate shocks.
B)  High interest inelasticity of a bond.
C)  High sensitivity of an asset price to interest rate shocks.
D)  Lack of sensitivity of an asset price to interest rate shocks.
E)  Smaller capital loss for a given change in interest rates.F) B) and D)
G) B) and C) C

Question 15

9-63 An FI has financial assets of $800 and equity of $50.If the duration of assets is 1.21 years and the duration of all liabilities is 0.25 years,what is the leverage-adjusted duration gap?

Accepted Answer

A)  0.9000 years.
B)  0.9600 years.
C)  0.9756 years.
D)  0.8844 years.
E)  Cannot be determined.F) A) and B)
G) A) and C)

Question 16

9-34 Immunizing the balance sheet of an FI against interest rate risk requires that the leverage adjusted duration gap (DA-kDL)should be set to zero.

Accepted Answer

A) True 
 B)False

Question 17

9-1 In most countries FIs report their balance sheet using market value accounting.

Accepted Answer

A) True 
 B)False

Question 18

9-48 The fact that the capital gain effect for rate decreases is greater than the capital loss effect for rate increases is caused by convexity in the yield-price relationship.

Accepted Answer

A) True 
 B)False

Question 19

9-93 What is the duration of the liabilities?

Accepted Answer

A)  0.708 years.
B)  0.354 years.
C)  0.350 years.
D)  0.955 years.
E)  0.519 years.F) A) and B)
G) A) and C)

Question 20

9-31 Matching the maturities of assets and liabilities is not a perfect method of immunizing the balance sheet because the timing of the cash flows is likely to differ between the assets and liabilities.

Accepted Answer

A) True 
 B)False

Exam 9: Interest Rate Risk Ii

9-49 Convexity is a desirable effect to a portfolio manager because it is easy to measure and price.

Correct AnswerverifiedShow Answer

9-89 Use the duration model to approximate the change in the market value (per $100 face value) of two-year loans if interest rates increase by 100 basis points.

Correct AnswerverifiedShow Answer

9-95 What is the duration of this bond?

Correct AnswerverifiedShow Answer

9-99 What is the bank's leverage adjusted duration gap?

Correct AnswerverifiedShow Answer

9-110.If yields increase by 10 basis points,what is the approximate price change on the $100,000 Treasury note? Use the duration approximation relationship.

Correct AnswerverifiedShow Answer

9-27 Using a fixed-rate bond to immunize a desired investment horizon means that the reinvested coupon payments are not affected by changes in market interest rates.

Correct AnswerverifiedFalse

9-87 What is the duration of the two-year loan (per $100 face value) if it is selling at par?

Correct AnswerverifiedB

9-58 Managers can achieve the results of duration matching by using these to hedge interest rate risk.

Correct AnswerverifiedShow Answer

9-45 The rate of change in duration values is less than the rate of change in maturity.

Correct AnswerverifiedShow Answer

9-118 What is the duration of the municipal notes (the value of x) ?

Correct AnswerverifiedShow Answer

9-77 What is the price of the bond if market interest rates are 5 percent?

Correct AnswerverifiedShow Answer

9-83 What is the FI's leverage-adjusted duration gap?

Correct AnswerverifiedShow Answer

9-20 Larger coupon payments on a fixed-income asset cause the present value weights of the cash flows to be lower in the duration calculation.

Correct AnswerverifiedShow Answer

9-53 Which of the following is indicated by high numerical value of the duration of an asset?

Correct AnswerverifiedC

9-63 An FI has financial assets of $800 and equity of $50.If the duration of assets is 1.21 years and the duration of all liabilities is 0.25 years,what is the leverage-adjusted duration gap?

Correct AnswerverifiedShow Answer

9-34 Immunizing the balance sheet of an FI against interest rate risk requires that the leverage adjusted duration gap (DA-kDL)should be set to zero.

Correct AnswerverifiedShow Answer

9-1 In most countries FIs report their balance sheet using market value accounting.

Correct AnswerverifiedShow Answer

9-48 The fact that the capital gain effect for rate decreases is greater than the capital loss effect for rate increases is caused by convexity in the yield-price relationship.

Correct AnswerverifiedShow Answer

9-93 What is the duration of the liabilities?

Correct AnswerverifiedShow Answer

9-31 Matching the maturities of assets and liabilities is not a perfect method of immunizing the balance sheet because the timing of the cash flows is likely to differ between the assets and liabilities.

Correct AnswerverifiedShow Answer

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False

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B

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C

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