How does the size of the change in a bonds price react

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1. How does the size of the change in a bond's price react in response to a given change in the yield to maturity as the time to maturity increases?

A. decreases at an increasing rate

B. decreases at a diminishing rate

C. increases at a constant rate

D. increases at a diminishing rate

E. increases at an increasing rate

2. Which one of the following statements is correct concerning Macaulay duration?

A. The duration of a zero coupon bond is equal to the time to maturity.

B. Most bonds have durations in excess of 15 years.

C. The duration of a coupon bond is a linear function between the time to maturity and the duration.

D. The duration of a coupon bond is greater than that of a zero coupon bond given equal maturity dates.

E. The percentage change in a bond's price is approximately equal to the change in the yield to maturity multiplied by (-1 × Macaulay duration).

3. The modified duration:

A. is equal to the Macaulay duration divided by (1 + Yield to maturity).

B. multiplied by (-1 × Change in the yield to maturity) equals the approximate percentage change in a bond's price.

C. will be the same for any bonds that have equal times to maturity.

D. only applies to pure discount securities.

E. must be converted to a Macaulay duration before computing the percentage change in a bond's price.

4. A bond has a face value of $1,000 and a coupon rate of 5.5 percent. What is your annual interest payment if you own 8 of these bonds?

A. $110

B. $220

C. $330

D. $440

 

E. $880

Reference no: EM131063457

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