Page 29 - FINAL CFA SLIDES DECEMBER 2018 DAY 15
P. 29
Session Unit 16:
54. Understanding Fixed Income Risk and Return (B/B/B/C/A)
12. A bond has a convexity of 114.6. The convexity effect, if the yield decreases by 110 basis points, is closest to:
A. –1.673%.
B. +0.693%.
C. +1.673%.
13. Assume a bond has an effective duration of 10.5 and a convexity of 97.3. Using both of these measures, the estimated percentage change
in price for this bond, in response to a decline in yield of 200 basis points, is closest to:
A. 19.05%.
B. 22.95%.
C. 24.89%.
14. An investor with an investment horizon of six years buys a bond with a modified duration of 6.0. This investment has:
A. no duration gap. tanties
B. a positive duration gap.
C. a negative duration gap.
15. Which of the following most accurately describes the relationship between liquidity and yield spreads relative to benchmark government
bond rates? All else being equal, bonds with:
A. less liquidity have lower yield spreads.
B. greater liquidity have higher yield spreads.
C. less liquidity have higher yield spreads.
16. An investor buys a 15-year, £800,000, zero-coupon bond with an annual YTM of 7.3%. If she sells the bond after 3 years for £346,333 she
will have:
A. a capital gain.
B. a capital loss.
C. neither a capital gain nor loss.
