HART FIXED INCOME EXAM 2 QUESTIONS AND ANSWERS

HART FIXED INCOME EXAM 2
QUESTIONS AND ANSWERS 2026
- 2027

What does Modified duration mean? - ANSWERS-If interest rate
goes down 1%, price of bond will go up approximately amount of
modified duration


If you think CPI will be lower than expected, you want what from
Modified duration? - ANSWERS-A higher number


What is the 1st property of duration? - ANSWERS-The higher the
duration the more interest rate risk


What is the 2nd property of duration? - ANSWERS-Ceteris Paribus,
the longer the maturity, the higher the duration


What is the 3rd property of duration? - ANSWERS-Ceteris Paribus,
the lower the coupon, the higher the duration
- Zero coupon --> Macaulay duration = maturity


What is the 4th property of duration? - ANSWERS-Ceteris Paribus,
the higher the yield to maturity, the lower the duration

, What is the 5th property of duration? - ANSWERS-Ceteris Paribus,
bond's duration increases at decreasing rate as maturity lengthens
(Mackiel #4)


What is Price Value of a Basis Point formula? - ANSWERS-PVBP =
(ModDur x V0) / 10,000


What is Approximate Modified Duration Formula? - ANSWERS-{(V-
) - (V+)} / (2 x V0 x Change YTM)
- V0 is 1000
- V- means yield to maturity goes down
- V+ means yiels to maturity goes up


What is the expected change in price formula? - ANSWERS-Duration
effect + convexity effect


What is duration effect? - ANSWERS-ModDur x Change YTM


What is convexity effect? - ANSWERS-1/2 convexity x YTM^2


In a convexity graph, the more convexity... - ANSWERS-the better


If you think interest rates will be volatile over the next 6 months, are
you willing to pay for extra convexity? - ANSWERS-Yes