Duration measures: A) The time to maturity of a bond
B) The sensitivity of bond prices to changes in interest rates
C) The annual coupon payment of a bond
D) The face value of a bond
Convexity measures: A) The curvature of the bond price-yield relationship
B) The time to maturity of a bond
C) The bond’s sensitivity to credit risk
D) The bond’s annual coupon payment
True or False: Duration is the same as maturity.
A) True
B) False
Which of the following bonds will typically have a higher duration?
A) Short-term bond
B) Long-term bond
C) High-coupon bond
D) Low-coupon bond
The formula for Macaulay duration includes:
A) Present value of cash flows
B) Coupon payments
C) Yield to maturity
D) All of the above
Convexity helps to measure:
A) The stability of bond prices
B) The sensitivity of bond prices to changes in interest rates
C) The face value of a bond
D) The credit rating of a bond
True or False: Higher coupon bonds generally have higher durations.
A) True
B) False
Duration is useful for:
A) Estimating a bond’s yield to maturity
B) Measuring a bond’s sensitivity to changes in interest rates
C) Calculating a bond’s face value
D) Determining a bond’s credit rating
The concept of effective duration is particularly relevant for:
A) Zero-coupon bonds
B) Floating-rate bonds
C) Treasury bonds
D) Corporate bonds
True or False: Duration measures the average time it takes for the bond’s cash flows to repay its price.
A) True
B) False
Convexity provides a more accurate estimate of bond price changes than duration because it:
A) Accounts for changes in credit ratings
B) Accounts for changes in interest rates
C) Accounts for changes in market liquidity
D) Accounts for changes in bond issuers
Which of the following statements about duration and convexity is true?
A) Bonds with longer durations have less interest rate risk
B) Bonds with higher convexity are less sensitive to interest rate changes
C) Duration and convexity have an inverse relationship
D) Duration measures the curvature of the bond price-yield relationship
The modified duration of a bond is:
A) Equal to its Macaulay duration
B) A measure of its sensitivity to changes in interest rates
C) Always less than its Macaulay duration
D) A measure of its credit risk
True or False: Convexity measures the degree to which a bond’s price changes in response to changes in interest rates.
A) True
B) False
Which of the following bonds will have the lowest duration?
A) 10-year bond
B) 5-year bond
C) 30-year bond
D) 20-year bond
The primary factor influencing a bond’s duration is its:
A) Credit rating
B) Coupon rate
C) Yield to maturity
D) Face value
True or False: Macaulay duration accounts for the time value of money.
A) True
B) False
Convexity is higher for bonds that:
A) Have longer maturities
B) Have higher coupon rates
C) Have lower credit ratings
D) Have higher face values
Which of the following statements about modified duration is true?
A) It is less sensitive to changes in interest rates than Macaulay duration
B) It is calculated using only the bond’s face value
C) It does not consider coupon payments
D) It is always equal to the bond’s yield to maturity
True or False: Bonds with higher convexity are less sensitive to interest rate changes.
A) True
B) False
The concept of convexity is important because it:
A) Provides a precise measure of interest rate risk
B) Helps in determining a bond’s credit rating
C) Determines the bond’s market liquidity
D) Calculates the bond’s face value
Which of the following bonds will have higher convexity?
A) Short-term bond
B) Long-term bond
C) High-coupon bond
D) Low-coupon bond
True or False: Duration and convexity are both measures of a bond’s risk.
A) True
B) False
The duration of a bond is primarily affected by:
A) Its coupon rate
B) Its face value
C) Its yield to maturity
D) Its credit rating
Convexity is important for bond investors because it:
A) Measures the bond’s sensitivity to credit risk
B) Measures the bond’s sensitivity to changes in interest rates
C) Measures the bond’s liquidity in the market
D) Measures the bond’s face value
True or False: Macaulay duration and modified duration are the same.
A) True
B) False
The Macaulay duration of a bond is calculated as:
A) The average time to receive all future cash flows
B) The reciprocal of its yield to maturity
C) The time to its first coupon payment
D) The time to its last coupon payment
Convexity is significant because it:
A) Predicts future changes in bond prices
B) Measures the curvature of the bond price-yield relationship
C) Determines the bond’s coupon rate
D) Determines the bond’s credit rating
Which of the following statements about modified duration is true?
A) It is less sensitive to interest rate changes than Macaulay duration
B) It ignores the bond’s yield to maturity
C) It includes the bond’s coupon payments
D) It is calculated using only the bond’s face value
True or False: Bonds with longer durations are less sensitive to changes in interest rates.
A) True
B) False
Convexity helps to correct the limitation of duration by:
A) Ignoring interest rate changes
B) Measuring bond liquidity
C) Measuring the bond’s credit risk
D) Accounting for the curvature of the bond price-yield relationship
Which of the following bonds is likely to have the highest duration?
A) Bond with a 2% coupon
B) Bond with a 5% coupon
C) Bond with a 10% coupon
D) Bond with a 0% coupon (zero-coupon bond)
True or False: Convexity measures the bond’s sensitivity to credit risk.
A) True
B) False
The concept of modified duration adjusts for:
A) Changes in credit ratings
B) Changes in bond prices
C) Changes in interest rates
D) Changes in market liquidity
True or False: Duration and convexity are both measures of a bond’s price sensitivity to interest rate changes.
A) True
B) False
The term “effective duration” is most relevant for:
A) Fixed-rate bonds
B) Floating-rate bonds
C) Zero-coupon bonds
D) Convertible bonds
Which of the following bonds is likely to have the lowest duration?
A) Bond with a 20-year maturity
B) Bond with a 10-year maturity
C) Bond with a 5-year maturity
D) Bond with a 30-year maturity
True or False: Convexity measures the bond’s sensitivity to changes in market conditions.
A) True
B) False
The term “negative convexity” refers to a bond that:
A) Has an inverse relationship between price and yield
B) Has a flat price-yield curve
C) Has a positive price-yield curve
D) Has a zero coupon rate
True or False: Higher coupon bonds generally have lower durations.
A) True
B) False
The duration of a bond is influenced by:
A) Market demand
B) Coupon payments
C) Economic growth
D) All of the above
Which of the following bonds will have the highest convexity?
A) Bond with a 5-year maturity
B) Bond with a 10-year maturity
C) Bond with a 15-year maturity
D) Bond with a 20-year maturity
True or False: Duration measures the bond’s price sensitivity to changes in market liquidity.
A) True
B) False
The concept of modified duration helps in:
A) Calculating the bond’s face value
B) Measuring the bond’s sensitivity to changes in interest rates
C) Determining the bond’s credit rating
D) Predicting changes in market demand
Which of the following statements about convexity is true?
A) Bonds with higher convexity are less sensitive to changes in interest rates.
B) Convexity is not relevant for bond investors.
C) Convexity measures the bond’s duration.
D) Convexity helps to predict future changes in bond prices.
True or False: Macaulay duration considers the timing and amount of all cash flows from a bond.
A) True
B) False
Convexity is a measure of the bond’s:
A) Credit risk
B) Liquidity
C) Price sensitivity to changes in interest rates
D) Yield to maturity
Which of the following factors does NOT affect a bond’s duration?
A) Coupon rate
B) Maturity date
C) Credit rating
D) Market demand
The term “effective duration” is particularly relevant for:
A) Bonds with call options
B) Zero-coupon bonds
C) Treasury bonds
D) High-coupon bonds
True or False: Duration is a precise measure of a bond’s price sensitivity to changes in interest rates.
A) True
B) False