土豆妮

Suppose that there is a parallel upward shift in the yield curve. Which of the following best explains this phenomenon? The yield:

A) decrease is the same for all maturities.

B) increase is the same for all maturities.

C) increase is proportional to the original level for all maturities.

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A parallel upward shift indicates an equal yield increase across all maturities.

土豆妮

A yield curve is flat, and then it undergoes a non-parallel shift. After the shift, which of the following must be FALSE? The new yield curve is:

A) curvilinear.

B) flat.

C) a straight line.

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If a yield curve begins flat and then experiences a non-parallel shift, this means that some rates changed more than others. After the non-parallel shift the formerly flat yield curve can no longer be flat.

土豆妮

Key Rate Durations
Issue	Value ($1,000's)	weight	3 mo	2 yr	5 yr	10 yr	15 yr	20 yr	25 yr	30 yr	Effective Duration
Bond 1	100	0.10	0.03	0.14	0.49	1.35	1.71	1.59	1.47	4.62	11.4
Bond 2	200	0.20	0.02	0.13	1.47	0.00	0.00	0.00	0.00	0.00	1.62
Bond 3	150	0.15	0.03	0.14	0.51	1.40	1.78	1.64	2.34	2.83	10.67
Bond 4	250	0.25	0.06	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.06
Bond 5	300	0.30	0.00	0.88	0.00	0.00	1.83	0.00	0.00	0.00	2.71
Total Portfolio		1.00	0.0265	0.325	0.4195	0.345	0.987	0.405	0.498	0.8865	3.8925

Change in Portfolio Value

Change from 3-month key rate increase:	(20 bp)(0.0265)	= 0.0053% decrease
Change from 5-year key rate increase:	(90 bp)(0.4195)	= 0.3776% decrease
Change from 30-year key rate decrease:	(150 bp)(0.8865)	= 1.3298% increase
Net change		0.9469% increase

This means that the portfolio value after the yield curve shift is:

1,000,000(1 + 0.009469) = $1,009,469.00

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