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54.The two components of interest rate risk are

A)price risk and default risk.

B)reinvestment risk and systematic risk.

C)call risk and price risk.

D)price risk and reinvestment risk.

E)none of the above.

55.Duration

A)assesses the time element of bonds in terms of both coupon and term to maturity.

B)allows structuring a portfolio to avoid interest rate risk.

C)is a direct comparison between bond issues with different levels of risk.

D)a and b.

E)a and c.

56.When interest rates decline, the duration of a 10-year bond selling at a premium

A)increases

B)decreases

C)remains the same

D)increases at first, then declines

E)decreases at first, then increases

57.An 8%, 30-year corporate bond was recently being priced to yield 10%.  The Macaulay duration for the bond is 10.20 years.  Given this information, the bond's modified duration would be

A)8.05

B)9.44

C)9.27

D)11.22

E)none of the above

58.Immunization is not a strictly passive strategy because

A)it requires choosing an asset portfolio that matches an index.

B)there is likely to be a gap between the values of assets and liabilities in most portfolios.

C)it requires frequent rebalancing as maturities and interest rates change.

D)durations of assets and liabilities fall at the same rate.

E)none of the above.

59.If a bond portfolio manager believes

A)in market efficiency, he or she is likely to be a passive portfolio manager.

B)that he or she can accurately predict interest rate changes, he or she is likely to be an active portfolio manager.

C)that he or she can identify bond market anomalies, he or she is likely to be a passive portfolio manager.

D)a and b.

E)a, b, and c.

60.Cash flow matching on a multiperiod basis is referred to as a

A)immunization

B)contingent immunization

C)dedication

D)duration matching

E)rebalancing

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