Fixed income quiz
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The document contains a 13 question quiz on fixed income concepts. The questions cover topics like bond pricing, duration, convexity, yield curves, and spreads. Sample questions calculate the price value of a basis point (PVBP) for a bond, determine the duration of a bond portfolio, and identify the order of market yields for different types of municipal bonds from highest to lowest.
Fixed income quiz
- 1. ©Pristine-Neev Knowledge Management Pvt Ltd Mangalayatan University PGCFR Fixed Income-Quiz 1. 8% $1,000 par-value, semi-annual pay bond with 5 years to maturity is currently trading at $1041.58. The bond’s price value of a basis point (PVBP) is closest to A. $0.42 B. $0.56 C. $0.85 2. In case of option-free bonds, when interest rate changes are large, the duration measure will A. Underestimate the increase in a bond’s price from a given fall in interest rate & overestimate the fall in bond’s price from a given increase in interest rate. B. Underestimate the increase & decrease in a bond’s price from a given fall & increase in interest rate respectively. C. Overestimate the increase in a bond’s price from a given fall in interest rate & underestimate the fall in bond’s price from a given increase in interest rate. 3. All else same, for a bond with higher convexity, investors will require A. Higher yield. B. Lower yield. C. Convexity does not affect the yield required by the investors. 4. A bond currently priced at $978.25 has a modified duration of 8 & a convexity of 37.5. Calculate the new price of the bond if interest rate rises by 10 basis points. A. $986.11 B. $903.66 C. $970.46 5. A portfolio consists of 3 bonds Bond Duration Par-value Market Value X 2.4 $2.5million $2.25million Y 7.8 $1million $1.1milliom Z 9.4 $5 million $5.2million Calculate the duration of the portfolio. A. 7.15 B. 7.37 C. 7.46 6. Which of the following is the most appropriate measure of duration for bonds with embedded options? A. Effective Duration B. Macaulay Duration C. Modified Duration
- 2. ©Pristine-Neev Knowledge Management Pvt Ltd Mangalayatan University 7. The current price of a $1000, 10 year, 6% semiannual coupon bond is $1038.06. The bond’s PVBP is closest to: A. $0.77 B. $0.67 C. $0.87 8. A non-callable bond with 6 years remaining maturity has a semi-annual coupon of 14% and a $1,000 par value. The current yield to maturity on is 12%. Which of the following is closest to the estimated price change of the bond using duration if rates rise by 75 basis points? A. 33.165 B. 32.625 C. 31.265 9. The 2-year spot rate is 6% & the 1-year spot rate is 4%. Which of the following rates is closest to the forward rate for 1 year, 1 year from now? A. 8.04% B. 8.00% C. 7.96% 10. New Jersey Municipal Corporation, a local authority has issued 3 bonds. Bond A is a limited tax general obligation bond. Bond B is an unlimited tax general obligation bond. Bond C is a revenue bond. What is most likely the order of the market yields on these three bonds starting from highest to lowest? A. Bond C, Bond B, Bond A. B. Bond B, Bond A, Bond C. C. Bond C, Bond A, Bond B. 11. Which one of the following statements is most likely true when the spot yield curve is negatively sloped: A. Z spread is less than nominal spread B. Z spread is equal to nominal spread C. Z spread is greater than nominal spread 12. Which of the following is most likely to be true, regarding nominal spread and zero-volatility spread? A. The steeper the bench mark spot rate curve, the greater the difference between the two spread measures. B. The earlier the bond principal is paid, the greater the difference between the two spread measures. C. When the spot yield curve is upward sloping, the nominal spread is larger than the Z-spread. 13. Given the following spot and forward rates, how much should an investor pay for each $1000 of a 2-year, annual zero-coupon bond? One-year spot rate is 5.5% The 1-year forward rate 1 year from today is 8.50%
- 3. ©Pristine-Neev Knowledge Management Pvt Ltd Mangalayatan University A. $932.42 B. $873.43 C. $760.45