Reading 69: Introduction to the Measurement of Interest R

答案和详解如下：

6.Which of the following bonds experience the greatest precentage price change when the market interest rates rise?

A)   A low coupon, short maturity bond.

B)   A low coupon, long maturity bond.

C)   A high coupon, short maturity bond.

D)   A high coupon, long maturity bond.

The correct answer was B)

There are three features that determine the magnitude of the bond price volatility:

(1) The lower the coupon, the greater the bond price volatility.

(2) The longer the term to maturity, the greater the price volatility.

(3) The lower the initial yield, the greater the price volatility.

According to these three features the greatest price change will come from the bond with a low coupon and long maturity.

7.An investor gathered the following information about two 7 percent annual-pay, option-free bonds:

§       Bond R has 4 years to maturity and is priced to yield 6 percent

§       Bond S has 7 years to maturity and is priced to yield 6 percent

§       Both bonds have a par value of $1,000.

Given a 50 basis point parallel upward shift in interest rates, what is the value of the two-bond portfolio?

A)   $2,044.

B)   $2,030.

C)   $2,086.

D)   $2,138.

The correct answer was A)

Given the shift in interest rates, Bond R has a new value of $1,017 (N = 4, PMT = 70, FV = 1,000, I/Y = 6.50%, CPT PV = 1,017). Bond S’s new value is $1,027 (N = 7, PMT = 70, FV = 1,000, I/Y = 6.50%, CPT PV = 1,027). After the increase in interest rates, the new value of the two-bond portfolio is $2,044 (1,017 + 1,027).

8.In comparing the price volatility of putable bonds to that of option-free bonds, a putable bond will have:

A)   less price volatility at higher yields.

B)   more price volatility at higher yields.

C)   less price volatility at low yields.

D)   more price volatility at low yields.

The correct answer was A)    

The only true statement is that putable bonds will have less price volatility at higher yields. At higher yields the put becomes more valuable and reduces the decline in price of the putable bond relative to the option-free bond. On the other hand, when yields are low, the put option has little or no value and the putable bond will behave much like an option-free bond. Therefore at low yields a putable bond will not have more price volatility nor will it have less price volatility than a similar option-free bond.

9.Consider the following two statements about putable bonds:

Statement #1: As yields rise, the price of putable bonds will fall less quickly than similar option-free bonds (beyond a critical point) due to the increase in value of the embedded put option.

Statement #2: As yields fall, the price of putable bonds will rise more quickly than similar option-free bonds (beyond a critical point) due to the increase in value of the embedded put option.

Are these statements correct or incorrect?

A)   Both statements are correct.

B)   Both statements are incorrect.

C)   Statement #1 is incorrect and Statement #2 is correct.

D)   Statement #1 is correct and Statement #2 is incorrect.

The correct answer was D)

Only statement #1 is true. As yields rise, the value of the embedded put option in a putable bond increases and (beyond a critical point) reduces the decline in the value of the bond compared to a similar option-free bond. As yields fall, the value of the embedded put option decreases and (beyond a critical point) the putable bond behaves much the same as a similar option-free bond since the embedded put option has little or no value.