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LOS c: Describe positive convexity, negative convexity, and their relation to bond price and yield.
Q1. Negative convexity for a callable bond is most likely to be important when the:
A) price of the bond approaches the call price.
B) bond is first issued.
C) market interest rate rises above the bond's coupon rate.
Q2. Jayce Arnold, a CFA candidate, is studying how the market yield environment affects bond prices. She considers a $1,000 face value, option-free bond issued at par. Which of the following statements about the bond’s dollar price behavior is most likely accurate when yields rise and fall by 200 basis points, respectively? Price will:
A) increase by $149, price will decrease by $124.
B) decrease by $149, price will increase by $124.
C) decrease by $124, price will increase by $149.
Q3. How does the price-yield relationship for a callable bond compare to the same relationship for an option-free bond? The price-yield relationship is:
A) concave for the callable bond and convex for an option-free bond.
B) the same for both bond types.
C) concave for low yields for the callable bond and always convex for the option-free bond.
Q4. Which of the following is most accurate about a bond with positive convexity?
A) Positive changes in yield lead to positive changes in price.
B) Price increases when yields drop are greater than price decreases when yields rise by the same amount.
C) Price increases and decreases at a faster rate than the change in yield.
Q5. The convexity of a U.S Treasury bond is usually:
A) negative.
B) zero.
C) positive.
Q6. Which of the following bonds bears the greatest price impact if its yield declines by one percent? A bond with:
A) 30-year maturity and selling at 100.
B) 10-year maturity and selling at 70.
C) 30-year maturity and selling at 70.
Q7. Non-callable bond prices go up faster than they go down. This is referred to as:
A) negative convexity.
B) positive convexity.
C) inverse features.
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发表于 2009-3-5 09:58
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