1.All else equal, the lower the bond’s yield to maturity, the:

A)   shorter the duration and the higher the interest rate risk.

B)   shorter the duration and the lower the interest rate risk.

C)   longer the duration and the lower the interest rate risk.

D)   longer the duration and the higher the interest rate risk.

2.Tom Wilkens is a portfolio manager and has a retiree as a client. The client would like to invest in bonds with low interest rate risk. Which bond should Tom choose for his client? The bond with a:

A)   20 year maturity and a yield to maturity of 5%.

B)   10 year maturity and a yield to maturity of 8%.

C)   10 year maturity and a yield to maturity of 5%.

D)   20 year maturity and a yield to maturity of 8%.

3.Which of the following bond features would result in lower interest rate risk? A:

A)   higher yield to maturity.

B)   longer maturity.

C)   lower coupon rate.

D)   larger change in interest rates.

4.What will happen to interest rate risk for an option-free bond if market yields decrease?

A)   Interest rate risk will decrease.

B)   Interest rate risk is indeterminate because this type of risk does not depend directly on the movement of market yields.

C)   Even if the term structure is flat, interest rate risk could go up or down based on the level of the term structure at the time market yields decrease.

D)   Interest rate risk will increase.

5.Which one of the following option-free bonds has the lowest interest rate risk?

A)   Bond issue 1.

B)   Bond issue 2.

C)   Bond issue 3.

D)   Bond issue 4.

答案和详解如下：

1.All else equal, the lower the bond’s yield to maturity, the:

A)   shorter the duration and the higher the interest rate risk.

B)   shorter the duration and the lower the interest rate risk.

C)   longer the duration and the lower the interest rate risk.

D)   longer the duration and the higher the interest rate risk.

The correct answer was D)

A lower yield to maturity would result in a longer duration and higher interest rate risk.

2.Tom Wilkens is a portfolio manager and has a retiree as a client. The client would like to invest in bonds with low interest rate risk. Which bond should Tom choose for his client? The bond with a:

A)   20 year maturity and a yield to maturity of 5%.

B)   10 year maturity and a yield to maturity of 8%.

C)   10 year maturity and a yield to maturity of 5%.

D)   20 year maturity and a yield to maturity of 8%.

The correct answer was B)

The shorter the bond’s maturity and the higher the yield to maturity, the shorter the duration and the lower the interest rate risk.

3.Which of the following bond features would result in lower interest rate risk? A:

A)   higher yield to maturity.

B)   longer maturity.

C)   lower coupon rate.

D)   larger change in interest rates.

The correct answer was A)

A higher yield to maturity would result in a shorter duration and lower interest rate risk. A longer maturity and lower coupon rate would result in longer durations and higher interest rate risk. Larger changes in interest rates would result in greater changes in bond prices and hence greater interest rate risk.

4.What will happen to interest rate risk for an option-free bond if market yields decrease?

A)   Interest rate risk will decrease.

B)   Interest rate risk is indeterminate because this type of risk does not depend directly on the movement of market yields.

C)   Even if the term structure is flat, interest rate risk could go up or down based on the level of the term structure at the time market yields decrease.

D)   Interest rate risk will increase.

The correct answer was D)

If market yields decrease, interest risk will increase since the duration or the sensitivity of the bond to interest rate fluctuation will increase.

5.Which one of the following option-free bonds has the lowest interest rate risk?

Bond issue	Coupon rate	Maturity (Years)	Required Market Yield
1	5.60%	15	6.40%
2	6.20%	14	7.40%
3	5.40%	15	6.60%
4	5.80%	14	7.00%

A)   Bond issue 1.

B)   Bond issue 2.

C)   Bond issue 3.

D)   Bond issue 4.

The correct answer was B)

The price sensitivity is lower when the level of interest rates is higher. Bond issue 2 has the highest market yield and therefore is least susceptible to larger price swings as interest rates change. Put another way, Bond issue 2 has the lowest duration and is therefore the least sensitive to changes in interest rates.