INVESTMENTS CH. 14-16 (BODIE, KANE, MARCUS) QUESTIONS WITH CORRECT ANSWERS 2025

INVESTMENTS CH. 14-16 (BODIE, KANE,
MARCUS) QUESTIONS WITH CORRECT
ANSWERS 2025
BondBpriceBareBinverselyBrelated:B-BcorrectBanswer-
asByieldsBincrease,BbondBpricesBfall;BasByieldsBfall,BbondBpricesBrise.



AnBincreaseBinBaBbond'sByieldBtoBmaturityBresultsBin...B-BcorrectBanswer-
aBsmallerBpriceBchangeBthanBaBdecreaseBinByieldBofBequalBmagnitude.



PricesBofBlong-termBbondsBtendBtoBbe...B-BcorrectBanswer-
moreBsensitiveBtoBinterestBrateBchangesBthanBpricesBofBshort-termBbonds.



TheBsensitivityBofBbondBpricesBtoBchangesBinByields...B-BcorrectBanswer-
increasesBatBaBdecreasingBrateBasBmaturityBincreases.



InterestBrateBriskBis...B-BcorrectBanswer-inverselyBrelatedBtoBtheBbond'sBcouponBrate.



TheBsensitivityBofBaBbond'sBpriceBtoBaBchangeBinBitsByieldBis...B-BcorrectBanswer-
inverselyBrelatedBtoBtheByieldBtoBmaturityBatBwhichBtheBbondBcurrentlyBisBselling.



Macaulay'sBDurationB-BcorrectBanswer-
effectiveBmaturityBofBbond,BequalBtoBweightedBaverageBofBtheBtimesBuntilBeachBpayment,BwithBweightsBpro
portionalBtoBtheBpresentBvalueBofBtheBpayment.



ModifiedBDurationB-BcorrectBanswer-
Macaulay'sBdurationBdividedBbyB(1B+BYTM).BMeasuresBinterestBrateBsensitivityBofBbond.



DurationBofBaBzero-couponBbond...B-BcorrectBanswer-equalsBitsBtimeBtoBmaturity



HoldingBmaturityBconstant,BaBbond'sBdurationBisB_____BwhenBtheBcouponBrateBisBhigher.B-BcorrectBanswer-
lower

, HoldingBtheBcouponBrateBconstant,BaBbond'sBdurationBgenerallyB_________BwithBitsBtimeBtoBmaturity.BDura
tionBalwaysB_________BwithBmaturityBforBbondsBsellingBatBparBorBatBaBpremiumBtoBpar.B-BcorrectBanswer-
increases;Bincreases



HoldingBotherBfactorsBconstant,BtheBdurationBofBaBcouponBbondBisB______BwhenBtheBbond'sByieldBtoBmatu
rityBisBlower.B-BcorrectBanswer-higher



DurationBofBPerpetuityB-BcorrectBanswer-(1+y)/y



TheBdurationBruleBisBaBgoodBapproximationBforB_____BchangesBinBbondByield,BbutBitBisBlessBaccurateBforB___
___Bchanges.B-BcorrectBanswer-small;Blarger



TheBrelationshipBbetweenBbondBpricesBandByieldsBisB__B_______.B-BcorrectBanswer-notBlinear



ΔP/PB=B−DΔy+(½×Convexity×(Δy)^2)B-BcorrectBanswer-BondBpriceBchangeBformulaB(usingBconvexity)



InvestorsBhaveBtoBpayB______BpricesBandBacceptB_____ByieldsBtoBmaturityBonBbondsBwithBgreaterB_______
__.B-BcorrectBanswer-higher;Blower;Bconvexity



EffectiveBDurationB-BcorrectBanswer-
PercentageBchangeBinBbondBpriceBperBchangeBinBtheBlevelBofBmarketBinterestBrates.



EffectiveBDurationBFormulaB-BcorrectBanswer-−(ΔP/P)/Δr



fixed-
incomeBinvestorsBfaceBtwoBoffsettingBtypesBofBinterestBrateBrisk:B_____BriskBandB____________B____Brisk.B-
BcorrectBanswer-price;BreinvestmentBrate




IncreasesBinBinterestBratesBcauseB_______B______BbutBatBtheBsameBtimeBincreaseBtheBrateBatBwhichB_____
_____B_____BwillBgrow.B-BcorrectBanswer-capitalBlosses;BreinvestedBincome