## QUIZ

**Question 1 **(2 points)

Focus

The components of interest rate risk are price risk and maturity risk.

Question 1 options:

True | |

False |

**Question 2 **(2 points)

A bond portfolio is immunized from interest rate risk if the modified duration of the portfolio is always equal to the desired investment horizon.

Question 2 options:

True | |

False |

**Question 3 **(2 points)

There can be only one zero-beta portfolio.

Question 3 options:

True | |

False |

**Question 4 **(2 points)

The bond management strategy intended to eliminate interest rate risk is immunization.

Question 4 options:

True | |

False |

**Question 5 **(2 points)

Studies have shown the beta is more stable for portfolios than for individual securities.

Question 5 options:

True | |

False |

**Question 6 **(2 points)

In a ladder strategy, which of the following is correct? Select one.

Question 6 options:

One-half of funds are invested in short duration bonds, and the rest are invested in long duration bonds. | |

Seventy-five percent of funds are invested in short duration bonds, and the rest are invested in long duration bonds. | |

Twenty-five percent of funds are invested in short duration bonds, and the rest are invested in long duration bonds. | |

An equal amount of funds is invested in a wide range of maturities. | |

All the funds are invested in long duration bonds. |

**Question 7 **(2 points)

The fact that tests have shown the CAPM intercept to be greater than the RFR is consistent with which of the following? Select one.

Question 7 options:

Zero beta model | |

Unstable beta or a higher borrowing rate | |

Zero beta model or a higher borrowing rate | |

Higher borrowing rate |

**Question 8 **(2 points)

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Exhibit 13.13: Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year, maturity of five years, yield to maturity of 6% per year, and a face value of $1000. Bond X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year, and a face value of $1000.

Refer to Exhibit 13.13. Assume that your investment horizon is five years, and your portfolio consists only of Bond Y and Bond X. Indicate the proportions invested in each bond, so that the portfolio is immunized.

Question 8 options:

50% in Bond Y and 50% in Bond X | |

76% in Bond Y and 24% in Bond X | |

36% in Bond Y and 64%in Bond X | |

100% in Bond X | |

100% in Bond Y |

**Question 9 **(2 points)

Coupon reinvestment risk arises because the yield to maturity computation implicitly assumes that all coupon flows will be reinvested at the _______. Select one.

Question 9 options:

coupon rate | |

effective rate of interest | |

realized yield to maturity | |

promised yield to maturity | |

existing yield as the coupons are paid. |

**Question 10 **(2 points)

Which factors indicate that in-depth credit analysis of high-yield bonds is important? Select one.

Question 10 options:

The large number of high-yield issues | |

The overall decline in quality of these bonds | |

The wide range of quality among these bonds | |

The growing complexity of these bonds | |

All of the above |