［2008］Topic 28: One-Factor Measures of Price Sensitivity相关习题

Baran

AIM 1: Define and compute the dollar value of a basis point (DV01) of a fixed income security, and interpret DV01 of a fixed income security, given a change in yield and the resulting change in price.

 

1、The price value of a basis point for a 7% coupon, semiannual pay, 10-year bond with a $1,000 par value, currently trading at par, is closest to:

A) $0.71.
 
B) $1.42.
 
C) $67.10.
 
D) $33.55.

郝吊负

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Baran

 

15、Which of the following statements best describes the concept of negative convexity in bond prices? As interest rates:

A) fall, the bond's price increases at an increasing rate.

B) rise, the bond's price approaches a minimum value.  

C) fall, the bond's price increases at a decreasing rate. 

D) rise, the bond's price decreases at a decreasing rate.

Baran

 

The correct answer is C

 

Negative convexity occurs with bonds that have prepayment/call features. As interest rates fall, the borrower/issuer is more likely to repay/call the bond, which causes the bond’s price to approach a maximum. As such, the bond’s price increases at a decreasing rate as interest rates decrease.

Baran

 

16、Negative convexity for a callable bond is most likely to be important when the:

A) bond is first issued.  

B) price of the bond approaches the call price. 

C) S& or Moody's rating on the bond falls.  

D) market interest rate rises above the bond's coupon rate. 

Baran

 

The correct answer is B

 

Negative convexity illustrates how the relationship between the price of a bond and market yields changes as the bond price rises and approaches the call price. The convex curve that we generally see for non-callable bonds bends backward to become concave (i.e., exhibit negative convexity) as the bond approaches the call price.

Baran

 

The correct answer is B

 

Yes, fixed income securities can have a negative security. The only type of fixed income security with a negative convexity will be callable bonds. 

Baran

 

13、Negative convexity is most likely to be observed in:

A) zero coupon bonds.

B) municipal bonds.

C) callable bonds.

D) treasury bonds.

Baran

 

The correct answer is C

 

All noncallable bonds exhibit the trait of being positively convex and callable bonds have a negative convexity.  Callable bonds have a negative convexity because once the yield falls below a certain point, as yields fall, prices will rise at a decreasing rate, thus giving the curve a negative convex shape.

Baran

 

14、Which of the following bonds may have negative convexity:

A) Mortgage backed securities.  

B) High yield bonds. 

C) Callable bonds. 

D) All of these choices are correct.