MCQ Quiz

Question 1 of 42

A bond's 5-year key rate duration is 2. If only the 5-year benchmark yield rises by 50 bps, the estimated percentage change in the bond's price is closest to:

-1.00%.
+1.00%.
-2.50%.

Question 2 of 42

If the parallel curve shift doubles from 100 bps to 200 bps, the absolute size of the convexity adjustment most likely:

doubles.
quadruples.
is unchanged.

Question 3 of 42

Analytical duration estimates implicitly assume that benchmark yields and credit spreads are:

negatively correlated.
positively correlated.
independent and uncorrelated.

Question 4 of 42

For a corporate bond with significant credit risk during a market stress scenario, empirical duration is most likely:

higher than analytical duration.
lower than analytical duration.
equal to analytical duration.

Question 5 of 42

During a flight to safety, the price of a high-quality government bond most likely:

rises as benchmark yields fall.
falls as benchmark yields rise.
is unchanged because credit spreads absorb the move.

Question 6 of 42

A zero-coupon bond maturing in ten years will most likely have its key rate duration concentrated at the:

2-year tenor.
10-year tenor.
30-year tenor.

Question 7 of 42

For an option-free bond with positive convexity, equal upward and downward parallel shifts in the benchmark curve most likely produce:

a larger price increase than price decrease in absolute terms.
a larger price decrease than price increase in absolute terms.
equal absolute price changes in both directions.

Question 8 of 42

A bond most likely exhibits negative effective convexity when it is:

a putable bond with rising yields.
a callable bond with low benchmark yields.
an option-free bond priced at par.

Question 9 of 42

For a callable bond, the most appropriate interest rate risk measure is most likely:

Macaulay duration.
Modified duration.
Effective duration.

Question 10 of 42

When benchmark yields are high relative to a callable bond's coupon rate, its effective duration compared to that of an otherwise identical non-callable bond is most likely:

much lower.
very similar.
always higher.

Question 11 of 42

A decline in a callable bond's effective duration when yields fall is best interpreted as a:

lengthening of expected life.
shortening of expected life.
change in credit quality.

Question 12 of 42

For a +200 bps parallel curve shift, the duration component of a bond's estimated percentage price change, using an effective duration of 5, is closest to:

-10.00%.
+10.00%.
-5.00%.

Question 13 of 42

Key rate durations are most useful for measuring a bond's sensitivity to:

parallel shifts in the benchmark yield curve.
changes in the shape of the benchmark yield curve.
changes in the bond's own credit spread.

Question 14 of 42

Empirical duration is most likely a more relevant interest rate risk measure than analytical duration for a portfolio of:

high-quality developed-market government bonds.
investment-grade and high-yield corporate bonds.
zero-coupon short-term Treasury bills.

Question 15 of 42

Given effective duration of 6 and effective convexity of -200, for a +100 bps parallel curve shift the estimated percentage change in full price is closest to:

-7.00%.
-5.00%.
-6.00%.

Question 16 of 42

A bond has an effective duration of 8 and effective convexity of 100. For a -100 bps parallel shift in the benchmark curve, the estimated percentage change in full price is closest to:

+8.00%.
+8.50%.
-8.50%.

Question 17 of 42

The effective convexity of a putable bond is most likely:

always positive.
always negative.
positive when yields are low and negative when yields are high.

Question 18 of 42

During a flight to safety, government benchmark yields and credit spreads are most likely:

positively correlated.
negatively correlated.
uncorrelated.

Question 19 of 42

In a flight-to-safety scenario, the analytical duration estimate for a corporate bond is most likely:

unaffected by the event itself.
lower than the empirical duration estimate.
driven higher by the widening of credit spreads.

Question 20 of 42

Duration and convexity statistics estimated using mathematical formulas are most accurately described as:

empirical duration and convexity.
analytical duration and convexity.
key rate duration and convexity.

Question 21 of 42

For a parallel shift of the entire benchmark yield curve, the percentage price change estimated from key rate durations is most likely:

equal to the change estimated from effective duration.
larger than the change estimated from effective duration.
smaller than the change estimated from effective duration.

Question 22 of 42

To compute a key rate duration at a given maturity, the analyst most likely:

shifts the entire benchmark yield curve up and down in parallel.
shifts only the benchmark yield at that maturity up and down.
shifts the bond's yield-to-maturity up and down.

Question 23 of 42

For a highly rated developed-market government bond, empirical duration and analytical duration are most likely:

broadly similar because benchmark yields drive prices.
very different because credit spreads drive prices.
unrelated because empirical duration cannot be estimated for government bonds.

Question 24 of 42

In the formula $\%\Delta PV \approx (-EffDur \times \Delta Curve) + [\tfrac{1}{2} \times EffCon \times (\Delta Curve)^2]$, the convexity adjustment for a positive-convexity bond is most likely:

positive for both upward and downward curve shifts.
positive only for downward curve shifts.
negative for upward curve shifts.

Question 25 of 42

A bond has an effective duration of 5 and an effective convexity of 0. For a +100 bps parallel shift in the benchmark curve, the estimated percentage change in full price is closest to:

-5.00%.
+5.00%.
-4.50%.

Question 26 of 42

A portfolio with a large 10-year key rate duration and a small 2-year key rate duration will most likely benefit if the benchmark yield curve:

flattens because long rates fall.
steepens because long rates rise.
shifts upward in a parallel manner.

Question 27 of 42

For a bond with negative effective convexity, an upward 100 bps parallel curve shift produces a price decline that is most likely:

smaller in absolute terms than the price increase from a downward 100 bps shift.
larger in absolute terms than the price increase from a downward 100 bps shift.
equal to the price increase from a downward 100 bps shift.

Question 28 of 42

During a flight to safety, the price of a high-yield corporate bond is most likely affected as:

falling benchmark yields fully raise its price.
widening credit spreads partially or fully offset the price increase from falling benchmark yields.
widening credit spreads reinforce the price increase from falling benchmark yields.

Question 29 of 42

Key rate duration is most accurately described as a measure of a bond's price sensitivity to a change in the benchmark yield at:

all maturities simultaneously.
a single specific maturity.
the bond's own yield-to-maturity.

Question 30 of 42

The price of a callable bond is most likely:

higher than the price of an otherwise identical non-callable bond.
lower than the price of an otherwise identical non-callable bond.
equal to the price of an otherwise identical non-callable bond.

Question 31 of 42

Yield duration and yield convexity are least appropriate for bonds whose cash flows are:

fixed and certain.
received on scheduled dates.
contingent on future interest rates.

Question 32 of 42

Compared with an otherwise identical non-callable bond, when benchmark yields are low and falling, the effective duration of a callable bond is most likely:

lower.
higher.
the same.

Question 33 of 42

The sum of the key rate durations of a bond is most likely equal to its:

modified duration.
effective duration.
Macaulay duration.

Question 34 of 42

Effective duration is least appropriate for which of the following bonds?

A mortgage-backed security.
A putable corporate bond.
None of the above; effective duration is appropriate for all of them.

Question 35 of 42

If long-dated benchmark rates rise while short-dated benchmark rates are unchanged, a bond whose key rate duration is concentrated at long maturities will most likely experience a:

price increase.
price decrease.
zero price change.

Question 36 of 42

If only the 5-year benchmark rate falls by 25 bps and all other key rates are unchanged, a bond whose 5-year key rate duration is positive will most likely see its price:

rise.
fall.
stay the same.

Question 37 of 42

When the benchmark curve shifts downward, holding effective duration constant, an increase in a bond's positive effective convexity will most likely:

decrease the estimated percentage price rise.
increase the estimated percentage price rise.
leave the estimated price rise unchanged.

Question 38 of 42

On an option-free bond, the difference between effective duration and modified duration most likely narrows as the yield curve:

steepens.
flattens.
inverts further.

Question 39 of 42

As benchmark yields fall toward the coupon rate of a callable bond, the value of the embedded call option most likely:

rises.
falls.
is unchanged.

Question 40 of 42

An otherwise identical putable bond is most likely priced:

below a non-putable bond.
above a non-putable bond.
at the same level as a non-putable bond.

Question 41 of 42

For a lower-quality corporate bond during stressed market conditions, empirical duration compared with analytical duration is most likely:

significantly higher.
significantly lower.
approximately equal.

Question 42 of 42

Empirical duration is best described as a duration estimate obtained from:

closed-form mathematical formulas.
historical data in statistical models incorporating factors affecting bond prices.
a parallel shift applied to the benchmark par curve in a pricing model.

First Principles Thinking: applying key rate duration

First Principles Thinking: squared term scales quadratically

First Principles Thinking: assumption behind analytical duration

First Principles Thinking: offsetting spread widening

First Principles Thinking: safe-haven demand

First Principles Thinking: cash flow timing drives sensitivity

First Principles Thinking: convexity adds for both shifts

First Principles Thinking: where convexity turns negative

First Principles Thinking: curve duration vs yield duration

First Principles Thinking: when the call is out of the money

First Principles Thinking: duration as expected life

First Principles Thinking: duration contribution

First Principles Thinking: shaping risk

First Principles Thinking: credit risk and correlation

First Principles Thinking: combining duration and negative convexity

First Principles Thinking: downward shift, positive convexity

First Principles Thinking: put floor supports the price

First Principles Thinking: flight-to-safety correlation

First Principles Thinking: formula-based vs data-based

First Principles Thinking: definition of analytical duration

First Principles Thinking: key rate durations sum to effective duration

First Principles Thinking: one point at a time

First Principles Thinking: minimal credit spread

First Principles Thinking: squared curve shift

First Principles Thinking: duration-only price change

First Principles Thinking: where the sensitivity lies

First Principles Thinking: squared shift, negative convexity

First Principles Thinking: competing forces on a risky bond

First Principles Thinking: partial duration

First Principles Thinking: who owns the option

First Principles Thinking: assumption behind yield duration

First Principles Thinking: call option limits price appreciation

First Principles Thinking: decomposition of effective duration

First Principles Thinking: universality of effective duration

First Principles Thinking: price and yield move opposite

First Principles Thinking: isolated curve shock

First Principles Thinking: positive convexity adds to gains

First Principles Thinking: par curve shift vs YTM change

First Principles Thinking: when the issuer wants to call

First Principles Thinking: investor holds the put

First Principles Thinking: observed prices vs formula prediction

First Principles Thinking: definition of empirical duration