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LOS m: Explain inflation risk.
Q1. David Korotkin, CFA and a broker at an investment bank, has a client who is very concerned about maintaining purchasing power over the next year. The investor is conservative, and to date has been pleased with a consistent return of 8.00%. The bank’s research department has estimated next year’s inflation rate at 2.0%. The client specifically wants to invest in a fixed-coupon bond. Which of the following statements is most correct? If Korotkin purchases a bond with a 10.00% coupon, the client:
A) may lose purchasing power.
B) will not lose purchasing power.
C) will realize a real gain.
Q2. One year ago, Makato Omura purchased a 6.50% fixed coupon bond for 98.50. Recently, she sold the bond for 99.25 and calculated her return at 7.4%. Her friend, Takanino Takemiya, CFA, reminds Omura that this is the nominal return and that to calculate the real return, she needs to factor in the inflation rate over the holding period. If the price index for the current year is 118.5 and the price index one year ago was 115.9, Omura’s real return is closest to:
A) 5.2%.
B) 9.6%.
C) 6.3%.
Q3. Which of the following statements about inflation risk is FALSE?
A) The short term inflation premium is less than the long term premium.
B) The real return on a fixed coupon bond is variable.
C) Treasury securities are considered immune to inflation and liquidity risk.
Q4. Which of the following investors is least susceptible to inflation risk?
A) The holder of a 15-year bond with a coupon formula equal to the U.S. prime rate plus 3.25%.
B) An individual with a 5 year certificate of deposit at a local financial institution.
C) A financial institution with assets concentrated in fixed-rate mortgages.
Q5. Which of the following investors faces the least inflation risk? An investor whose portfolio is concentrated in:
A) long-term treasury bonds.
B) fixed-rate certificates of deposit.
C) equity securities.
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发表于 2009-3-2 16:01
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