FIXEDINCOMEMSCINFMI - Knowledge QUIZZ_2

QUIZZ 2
Please show all calculation of your results
1. Consider the following Treasury securities :
Bonds
(years)
A
B

Price

Modified duration

$1000
$ 800

6
7

Which bond will have the greatest dollar price volatility for a 0.25% change
in interest rate ? (3 points)
2. Consider the following portfolio of bonds :

BONDS
CONVEXI
A
25
B
47
C
56
D
125

MARKET VALUE

DURATION

$13 million

2

$ 27 million

7

$ 60 million

8

$ 40 million

14

a. What is the portfolio’s duration ? (2 points)
b. If interest rate for all maturities change by 50 basis point (that is 0.50%), what
is the approximate percentage change in the value of the portfolio ( 1 point)
3.

From your Bloomberg sheet handout :



What is the dollar price of the 6-month Treasury bill? (2 points)
Today is January 22, 2002 and you wish to purchase the 5 year Treasury note.
What is your total purchase price ? (3 points)

4. What is the duration of a 10 year zero coupon bond ? Explain your answer. (3 points)
5. What are the 2 definitions of duration? (2 points)
6. A bond portfolio manager expects interest rates to increase in the near future. What
should his strategy be in readjusting his bond portfolio? (2 points)
7. What is the yield to maturity of a 7-year bond paying a coupon of 6% and trading at
par? Explain your answer (2points)