Q1 -TRUE OR FALSE The price of an asset with a long duration is more sensitive t
ID: 2655271 • Letter: Q
Question
Q1 -TRUE OR FALSE The price of an asset with a long duration is more sensitive to changes in interest rates, than the price of an asset with a short duration Q2-TRUE OR FALSE Bond prices move in the opposite direction of interest rates. Q3 TRUE OR FALSE For two bonds with the same maturity and yield to maturity, a bond with a large coupon will have a longer duration than a bond with a small coupon Q4-TRUE OR FALSE Duration of a coupon bond is less than the maturity of the bond. Q5-TRUE OR FALSE Duration of a zero coupon bond is equal to the maturity of the bond. Pl. (5 points) Find the Duration of a 3-year, 3% annual coupon bond that sells at a yield to maturity of 5%. Duration years P2. (5 points) Find the new price of a bond with a modified duration of 10years if interest rates decline by 5 basis points and the bond price was S670 before the interest rate change. New Bond Price S P3. (5 points) A 30-year maturity bond pays a coupon of 7% once per year and has a face value of S1,000. Its yield to maturity is presently 5%- Ower the upcoming year, you expect interest rates to increase and that the yield to maturity on this bond will be 6% a year from now. Using horizontal analysis, calculate the return you expect to earn by holding this bond over the upcoming year. Holding Period Return SExplanation / Answer
1)True: The price of an asset with a long duration is more sensitive to changes than a price of an asset with a shorter duration because of changes in many factors such as interest rates etc.
2) False : Bond prices and interest rates moves in the same direction if the interest rate of the bondis increasing then the price of the bond will also increase
3) False : Bonds having same yield to maturity but different coupon rates then the bond with the higher coupon rate will be having longer duration and the bond with smaller coupon rate will be having shorter duration
4) True : Duration of a bond is less than the yield to maturity
5) True : Duration of a zero coupon bond is equal to the yield to maturity of a bond
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