Fight Finance

(a) Is the weighted average time that an asset’s cash flows are received.

(b) Is measured in units of time, usually years.

(c) Of a zero-coupon bond is equal to the bond’s maturity.

(d) Of a fixed-coupon-paying bond will be more than the bond’s maturity.

(e) Of a portfolio is an arithmetic average of the Macaulay durations of the assets in the portfolio, weighted by their prices.

(a) Value stocks

(b) Growth stocks

(c) Real estate

(d) 10 year bond

(e) Cash

(a) 1.925669 years

(b) 1.951087 years

(c) 2 years

(d) 2.048913 years

(e) 2.074331 years

(a) 1.925669 years

(b) 1.951087 years

(c) 2 years

(d) 2.048913 years

(e) 2.074331 years

(a) Is the weighted average time that an asset’s cash flows are received, usually measured in years.

(b) Divided by (1+y) equals the modified duration, where y is the yield to maturity given as an effective annual rate and duration is measured in years.

(c) Of a zero-coupon bond is equal to the bond’s maturity.

(d) Of a fixed-coupon-paying bond will be less than the bond’s maturity.

(e) Of a portfolio is an arithmetic average of the Macaulay durations of the assets in the portfolio, weighted by their face values.

(a) The Macaulay duration of the bond is 22 years.

(b) If yields-to-maturity suddenly fell by 1 percentage point then bond prices would suddenly rise by 20% or more.

(c) If yields-to-maturity suddenly rose by 2 percentage points then bond prices would suddenly fall by 40% or less.

(d) If the bond is a zero-coupon bond then its maturity is 20 years.

(e) The modified-duration-price-change formula assumes parallel shifts in the yield curve.

(a) The Macaulay duration of the bond is 10.5 years.

(b) If yields-to-maturity suddenly rose by 1 percentage point then bond prices would suddenly fall by 10% or less.

(c) If yields-to-maturity suddenly fell by 2 percentage points then bond prices would suddenly rise by 20% or less.

(d) If the bond is a zero-coupon bond then its maturity is 10.5 years.

(e) The duration-price-change formula assumes parallel shifts in the yield curve.

(a) Bond holders like convexity, it’s good for them.

(b) Bond issuers like convexity, it’s good for them.

(c) If yields rise, convex bonds lose less value than non-convex bonds of equal duration.

(d) If yields fall, convex bonds gain more value than non-convex bonds of equal duration.

(a) Higher than the market portfolio's beta.

(b) Lower than the market portfolio's beta.

(c) Equal to the market portfolio's beta.

(d) There's not enough information to answer the question.

(a) Consumer staple stocks with high payout ratios such as shares in supermarkets.

(b) Fast-growing technology stocks with low payout ratios such as shares in software companies.

(c) Fixed coupon 3 year government bonds that were just issued and pay semi-annual coupons.

(d) Floating coupon 3 year corporate bonds that were just issued and pay semi-annual coupons.

(e) 90 day certificate of deposit.

(a) 13.75 years

(b) 14.333333 years

(c) 19.545455 years

(d) 35 years

(e) Infinity

(a) 6% pa is the stock's required return.

(b) $75 is the stock's fair price.

(c) 26.5 years is the stock's Macaulay duration.

(d) If the market portfolio were to fall 1% today, the stock is expected to fall by 0.5%.

(e) If the Treasury bond yield were to fall 1 percentage point today, then the stock price is expected to fall by 25% approximately, ceteris paribus.

(a) Coupon rate is equal to the benchmark rate plus a premium.

(b) Premium is also commonly called a spread or margin.

(c) Premium rate is fixed. The number is written in the bond contract and does not change.

(d) Benchmark rate is fixed. The number is written in the bond contract and does not change.

(e) Paying quarterly US dollar coupons often use the 90-day USD LIBOR rate as the benchmark.

(a) Next quarterly dollar coupon is equal to the bond's face value multiplied by the coupon rate, divided by 4.

(b) First coupon is based on the benchmark rate at the time the bond was first issued. Therefore the first quarterly coupon is known for certain when it is issued.

(c) Coupons after the first are based on the benchmark rate at the time of that next coupon's ex-coupon date. Therefore the next quarterly coupon's dollar payment is unknown until its ex-coupon date, which is just a few days before the coupon payment date.

(d) Macaulay duration is equal to the time until the next ex-coupon date.

(e) Price is generally equal to its face value on its ex-coupon dates if there was no change in the bond's risk premium since it was issued.

(a) 1 year

(b) 5 years

(c) 10 years

(d) 15 years

(e) 20 years