What's new

# P1.T4.417. Interest rate risk

#### Nicole Seaman

##### Chief Admin Officer
Staff member
Subscriber
Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual exam question. As these represent "easier than our usual" practice questions, they are well-suited to online simulation.

Questions:

417.1. Consider a 1.5 year bond that pays a 9.0% semi-annual coupon. Under the following spot/forward rate curves, the bond's price is $110.22, as follows: As the rates are expressed with semi-annual compounding, which is nearest to the bond's (modified) duration? a. 1.256 b. 1.372 c. 1.425 d. 1.497 417.2. A zero-coupon bond with a 20-year maturity has a face value of$1,000 when the yield curve is flat at a certain per annum rate with continuous compounding. If the yield increases by 80 basis points (0.80%), which is nearest to the estimated decrease in the bond price in percentage terms?

a. -14.72%
b. -15.33%
c. -16.00%
d. Need an actual yield (estimate varies by yield)

417.3. Which is nearest to, respectively, the effective duration and effective convexity of a 15-year bond that pays a 9.0% semi-annual compound and yields 12.0% per annum with semi-annual compounding?

a. 7.3 years and 81.0 years^2
b. 9.4 years and 65.0 years^2
c. 12.0 years and 143.0 years^2
d. 13.8 years and 204.0 years^2