A)times the change in interest rate.

B)times (one plus the bond's yield to maturity).

C)divided by (one minus the bond's yield to maturity).

D)divided by (one plus the bond's yield to maturity).

E)none of the above.

47.Given the time to maturity, the duration of a zero coupon bond is higher when the discount rate is

A)higher.

B)lower.

C)equal to the risk free rate.

D)independent of the discount rate.

E)none of the above.

48.The interest rate risk of a bond is

A)the risk related to the possibility of bankruptcy of the bond's issuer.

B)the risk that arises from the uncertainty of the bond's return caused by the change in interest rates.

C)the unsystematic risk caused by factors unique in the bond.

D)a and b above.

E)a, b, and c above.

49.Which of the following two bonds is more price sensitive to changes in interest rates?

1) A par value bond, X, with a 5-year-to-maturity and a 10% coupon rate.

2) A zero coupon bond, Y, with a 5-year-to-maturity and a 10% yield-to-maturity.

A)Bond X because of the higher yield to maturity.

B)Bond X because of the longer time to maturity.

C)Bond Y because of the longer duration.

D)Both have the same sensitivity because both have the same yield to maturity.

E)None of the above

50.Which of the following is not true?

A)Holding other things constant, the duration of a bond increases with time to maturity.

B)Given time to maturity, the duration of a zero coupon decreases with yield to maturity.

C)Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower.

D)Duration is a better measure of price sensitivity to interest rate changes than is time to maturity.

E)All of the above.

51.The duration of a 5-year zero coupon bond is

A)smaller than 5.

B)larger than 5.

C)equal to 5.

D)equal to that of a 5-year 10% coupon bond

E)none of the above.

52.The basic purpose of immunization is to

A)eliminate default risk.

B)produce a zero net interest rate risk.

C)offset price and reinvestment risk.

D)a and b.

E)b and c.

53.The XYZ bond is selling at par value and has a modified duration equal to 6. Which one of the following statements regarding the bond is true?

A)If the market yield increases by 1% the bond's price will decrease by $60.

B)If the market yield increases by 1% the bond's price will increase by $50.

C)If the market yield increases by 1% the bond's price will decrease by $50.

D)If the market yield decreases by 1% the bond's price will increase by $60.

E)None of the above.