Wealth-Forum e-zine

Test your understanding of this topic

Q1.

Effective duration and modified duration will be similar for

a. Option free bonds

b. Bonds with embedded options

c. None of the above

Q2.

The duration of a bond will be lesser than its maturity except in case of

a. Bond with lower coupon

b. Bond with higher coupon

c. zero coupon bond

Q3.

There is an increase in interest rates by 1%. A bond with duration of 2 would mean

a. Price of bond will increase by 2%

b. Price of bond will decrease by 2%

c. Price of bond will decrease by 1%

Q4.

Which bond should be preferred when interest rate decline is anticipated?

a. Bond with coupon of 4% and maturity of 5 years

b. Bond with coupon of 4% and maturity of 10 years

c. Any of the above

Q5.

When fund managers anticipate an increase in the interest rates, they

a. Reduce the duration of the portfolio

b. Increase the duration of the portfolio