3.MULTIPLECHOICES (1point each question) total 3 points 1.Which of the following

Question

3.MULTIPLECHOICES (1point each question) total 3 points 1.Which of the following is not a characteristic of a money market instrument? A. liquidity B. marketability C. low risk D. maturity greater than 1 year 2.In regard to bonds, convexity relates to the A. shape of the bond price curve with respect to interest rates B. shape of the yield curve with respect to maturity C. slope of the yield curve with respect to liquidity premiums D. size of the bid-ask spread 3.Given its time to maturity, the duration of a zero-coupon bond is . higher when the discount rate is higher . higher when the discount rate is lower lowest when the discount rate is equal to the risk-free rate . the same regardless of the discount rate

Explanation / Answer

ANSWER 1 : D : MATURITY GREATER THAN 1 YEAR

MONEY MARKET INSTRUMENTS ARE OF LESS THAN A YEAR

ANSWER 2: A : CONVEXITY MEANS : SHAPE OF THE BOND PRICE CURVE WITH RESPECT TO INTEREST RATES

CONVEXITY GIVES US HOW BOND PRICES CHANGES WITH CHANGE IN INTEREST RATES

ANSWER 3 : D : GIVEN ITS TIME TO MATURITY, THE DURATION OF A ZERO COUPON BOND, IS SAME REGARDLESS OF DISCOUNT RATE

ZERO COUPON BOND HAS NO COUPON SO THE DURATION OF BOND DOES NOT CHANGE (THUMBS UP PLEASE)

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