t fonowing bonds is the least sensitive to interest rate risk? A) 5-year, 6 perc

Question

t fonowing bonds is the least sensitive to interest rate risk? A) 5-year, 6 percent coupon B) 3-year, 4 percent coupon c) 7-year, 4 percent coupon D) 7-year, 6 percent coupon 9 3-year, 6 percent coupon 11) You expect interest rates to decline in the near future even though the bond market is not ) indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? A) Short-term; low coupon B) Long-term; high coupon C) Short-term; high coupon D) Long-term; low coupon Long-term; zero coupon 12) A Treasury bond is quoted as 99.6325 asked and 99.1250 bid. What is the bid-ask spread 12) in dollars on a $10,000 face value bond? A) $25.38 B) $5.75 C) $2.54 D) $5.08 E) S50.75 13) You purchase a bond with an invoice price of $1,119. The bond has a coupon rate of13) 6.25 percent, a face value of $1,000, and there are four months to the next semiannual coupon date. What is the clean price of this bond? A) $1,087.75 B) $1,083.50 C) $1,114.14 D) $1,052.17 E) $1,108.58 14) 14) An investment offers a total return of 13.8 percent over the coming year. You believe the total real return will be only 9.4 percent. What do you believe the exact inflation rate will be for the next year? A) 3.67 percent B) 3.89 percent C) 3.52 percent D) 4.02 percent E) 4.14 percent 15) You want to have $2 million in real dollars in an account when you retire in 35 years. The nominal return on your investment is 9.94 percent and the inflation rate is 3.2 percent. What is the real amount you must deposit each year to achieve your goal? 15) 8) $20,403C)$18,887D) $16,017 E)$19,711 A) $7,482

Explanation / Answer

1.
Least sensitive is the least duration
least duration is least maturity and highest coupon
Option E

2.
largest gain from largest duration
largest duration is highest maturity and lowest coupon
Option E

3.
=(99.6325-99.1250)%*10000=50.75
Option E

4.
=invoice price-accrued interest=invoice price-coupon rate*face value*(fraction of year till next coupon)=1119-2/12*6.25%*1000=1108.58
Option E

5.
=(1+nominal return)/(1+real return)-1=1.138/1.094-1=4.02%
Option D

6.
=PMT(1.0994/1.032-1,35,0,2000000)=16017
Option D

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