1.

Bonds with higher coupons, other things being the same :

a) Have more interest rate risk than bonds with smaller coupons
b) Have less interest rate risk than bonds with smaller coupons
c) Have higher duration than smaller coupon bonds
d) Have lower duration than smaller coupon bonds
e) Both b and d

2. If you expect a large decline in interest rates, which of the following

investments should you choose :
a) Money Market Fund
b) Low Coupon Short Term Bond
c) High Coupon Short Term Bond
d) Long Term Zero Coupon Bond
e) Short Term Zero Coupon Bond

3. A bonds reinvestment rate risk :

a) Refers to the problem of being able to purchase another bond with the
same or higher YTM when the existing bond matures or is called
b) Is the risk of not being able to reinvest the coupons of the bond at the
bonds YTM
c) Is the same as marketability risk
d) Both a & b
e) None of the above

4. If the market rate of interest falls, a coupon paying bond will :

a) Decrease in value
b) Experience a decrease in duration
c) Experience an increase in duration
d) None of the above
e) Both a & b

5. A bonds duration measures which one of the following :

a) The time structure of a bond’s cash flows
b) The bonds interest rate risk
c) Both a & b
d) The default risk of the bond issue
e) None of the above

6. Duration of a Zero Coupon Bond is less than its term to maturity True or
False

7. Long Term bonds are almost always more volatile in terms of price than
short
term bonds for a given change in interest rates True or False
8. Bond Price’s volatility is directly related to the bonds coupon True or False
9. Duration of a Coupon paying bond is always less than its term to maturity
True or False

10. There is a direct relationship between a bonds coupon and duration

11. As a bonds YTM increases if other things are held constant its duration
Decreases True or False

12. When a bonds YTM equals its coupon rate the bonds price is less than par
value
True of False

13. You are a Financial Planner and one of your clients reads something about
interest rate risk and is worried that if the market interest rates declined her
coupon interest income will likewise decline. The clients bond maturities
range from 15-30 years. What advice is appropriate for this client :
a) Tell the client to liquidate her coupon paying bonds and reinvest the
money in zero coupon bonds.
b) Tell the client not to worry and her coupon will not vary until
maturity.
c) Both a & b
d) The client need not worry if the market interest rates are expected to
rise because coupon rates vary inversely with market interest rates
and therefore her coupon interest could increase.
e) All of the above are true