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INVESTMENTS CH. 14-16 (BODIE, KANE, MARCUS) QUESTIONS WITH CORRECT ANSWERS 2025
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INVESTMENTS CH. 14-16 (BODIE, KANE, MARCUS) QUESTIONS WITH CORRECT ANSWERS 2025
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INVESTMENTS CH. 14-16 (BODIE, KANE,MARCUS) QUESTIONS WITH CORRECT
ANSWERS 2025
BondBpriceBareBinverselyBrelated:B-BcorrectBanswer-
asByieldsBincrease,BbondBpricesBfall;BasByieldsBfall,BbondBpricesBrise.
AnBincreaseBinBaBbond'sByieldBtoBmaturityBresultsBin...B-BcorrectBanswer-
aBsmallerBpriceBchangeBthanBaBdecreaseBinByieldBofBequalBmagnitude.
PricesBofBlong-termBbondsBtendBtoBbe...B-BcorrectBanswer-
moreBsensitiveBtoBinterestBrateBchangesBthanBpricesBofBshort-termBbonds.
TheBsensitivityBofBbondBpricesBtoBchangesBinByields...B-BcorrectBanswer-
increasesBatBaBdecreasingBrateBasBmaturityBincreases.
InterestBrateBriskBis...B-BcorrectBanswer-inverselyBrelatedBtoBtheBbond'sBcouponBrate.
TheBsensitivityBofBaBbond'sBpriceBtoBaBchangeBinBitsByieldBis...B-BcorrectBanswer-
inverselyBrelatedBtoBtheByieldBtoBmaturityBatBwhichBtheBbondBcurrentlyBisBselling.
Macaulay'sBDurationB-BcorrectBanswer-
effectiveBmaturityBofBbond,BequalBtoBweightedBaverageBofBtheBtimesBuntilBeachBpayment,BwithBweightsBpro
portionalBtoBtheBpresentBvalueBofBtheBpayment.
ModifiedBDurationB-BcorrectBanswer-
Macaulay'sBdurationBdividedBbyB(1B+BYTM).BMeasuresBinterestBrateBsensitivityBofBbond.
DurationBofBaBzero-couponBbond...B-BcorrectBanswer-equalsBitsBtimeBtoBmaturity
HoldingBmaturityBconstant,BaBbond'sBdurationBisB_____BwhenBtheBcouponBrateBisBhigher.B-BcorrectBanswer-
lower
, HoldingBtheBcouponBrateBconstant,BaBbond'sBdurationBgenerallyB_________BwithBitsBtimeBtoBmaturity.BDura
tionBalwaysB_________BwithBmaturityBforBbondsBsellingBatBparBorBatBaBpremiumBtoBpar.B-BcorrectBanswer-
increases;Bincreases
HoldingBotherBfactorsBconstant,BtheBdurationBofBaBcouponBbondBisB______BwhenBtheBbond'sByieldBtoBmatu
rityBisBlower.B-BcorrectBanswer-higher
DurationBofBPerpetuityB-BcorrectBanswer-(1+y)/y
TheBdurationBruleBisBaBgoodBapproximationBforB_____BchangesBinBbondByield,BbutBitBisBlessBaccurateBforB___
___Bchanges.B-BcorrectBanswer-small;Blarger
TheBrelationshipBbetweenBbondBpricesBandByieldsBisB__B_______.B-BcorrectBanswer-notBlinear
ΔP/PB=B−DΔy+(½×Convexity×(Δy)^2)B-BcorrectBanswer-BondBpriceBchangeBformulaB(usingBconvexity)
InvestorsBhaveBtoBpayB______BpricesBandBacceptB_____ByieldsBtoBmaturityBonBbondsBwithBgreaterB_______
__.B-BcorrectBanswer-higher;Blower;Bconvexity
EffectiveBDurationB-BcorrectBanswer-
PercentageBchangeBinBbondBpriceBperBchangeBinBtheBlevelBofBmarketBinterestBrates.
EffectiveBDurationBFormulaB-BcorrectBanswer-−(ΔP/P)/Δr
fixed-
incomeBinvestorsBfaceBtwoBoffsettingBtypesBofBinterestBrateBrisk:B_____BriskBandB____________B____Brisk.B-
BcorrectBanswer-price;BreinvestmentBrate
IncreasesBinBinterestBratesBcauseB_______B______BbutBatBtheBsameBtimeBincreaseBtheBrateBatBwhichB_____
_____B_____BwillBgrow.B-BcorrectBanswer-capitalBlosses;BreinvestedBincome
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