[2008]Topic 29: Measures of Price Sensitivity Based on Parallel Yield Shifts相 percentage, following, all, interest, depends

Baran

 

AIM 1: Define and compute the yield-based DV01.

 

1、The magnitude of the percentage price change on a bond for a given change in interest rates depends on all of the following EXCEPT the:

A) volatility of interest rates.

B) coupon rate.

C) term to maturity.

D) initial yield. 

cfaadmin

A) volatility of interest rates.

Baran

 

AIM 7: Analyze the impact convexity may have on a barbell and bullet portfolio.

 

1、Evaluated at the same yield, the investment that is expected to have the greatest convexity is a:

A) portfolio with a duration of 10 that contains a 5-year zero-coupon bond and a 15-year zero-coupon bond. 

B) callable 6% coupon bond of 10-year duration. 

C) 6% coupon bond of 10-year duration.

D) 10-year zero-coupon bond. 

Baran

 

The correct answer is A

 

A barbell portfolio will have greater convexity than a bullet portfolio, so convexity of the barbell portfolio is greater than the convexity of the 10-year zero-coupon bond. In general, the higher the coupon, the lower the convexity, so convexity of the 10-year zero-coupon bond is greater than the convexity of the 6% coupon bond of 10-year duration and the callable 6% coupon bond of 10-year duration.

Baran

 

AIM 6: Create a barbell and a bullet portfolio.

1、Immunization is the process of offsetting the effects of interest-rate changes on the value of assets and liabilities. Coverage of liabilities with significant convexity may be more effectively matched with a:

A) mortgage portfolio, especially in a highly volatile rate environment.

B) barbell portfolio with positive convexity.

C) bullet portfolio with little convexity.

D) callable bond portfolio, especially in a declining-rate environment.

Baran

 

The correct answer is B

 

Barbell portfolios usually contain substantial convexity, which can be used to offset changes in liabilities not met with duration matches.

Baran

 

The correct answer is C

 

N	CF	PV of CF	% of total PV	N x % of total PV
1	$8	$7.2727	0.0753	0.0753
2	$108	$89.2562	0.9247	1.89494
Sum		$96.528	1.000	1.9247≈1.92

Baran

 

The correct answer is A

 

Both the consol and the corporate have a 10-year duration. The 10% coupon Treasury has a shorter duration than the 8.5% Treasury because coupon and duration are inversely related, all else equal.

Baran

 

7、Estimate the Macaulay and modified durations of a 2-year, annual-pay bond paying a 6 percent coupon and priced to yield 5 percent.

A) 2.00; 1.90.

B) 1.94; 1.85.

C) 6.00; 5.00.

D) 1.05; 1.06.

Baran

 

The correct answer is B

 

Macaulay Duration
N	CF	PV of CFw	% of total	N ′ % of total
1	$6	$5.7143	0.0561	0.0561
2	$106	$96.1451	0.9439	1.8878
		$101.8594	1.0000	1.9439

modified duration = (1.9439 / 1.05) = 1.8513