PD 8 - 1Q2024 (Solucion)

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de DEPARTAMENTO DE FINANZAS
nti RENTA FIJA
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PRIMER SEMESTRE 2024
JEFE DE PRÁCTICAS: LUIS SATURNO JORGE APARCANA
PRÁCTICA DIRIGIDA N° 8
Ejercicios
1. Effective duration is more appropriate than modified duration for estimating interest rate
risk for bonds with embedded options because these bonds:
a) tend to have greater credit risk than option-free bonds.
b) exhibit high convexity that makes modified duration less accurate.
c) have uncertain cash flows that depend on the path of interest rate changes.
Because bonds with embedded options have cash lows that are uncertain and depend on future
interest rates, effective duration must be used.
2. Portfolio duration has limited usefulness as a measure of interest rate risk for a portfolio
because it:
a) assumes yield changes uniformly across all maturities.
b) cannot be applied if the portfolio includes bonds with embedded options.
c) is accurate only if the portfolio’s internal rate of return is equal to its cash flow
yield.
Portfolio duration is limited as a measure of interest rate risk because it assumes parallel shifts
in the yield curve; that is, the discount rate at each maturity changes by the same amount.
Portfolio duration can be calculated using effective durations of bonds with embedded
options. By deinition, a portfolio’s internal rate of return is equal to its cash low yield.
3. The current price of a $1,000, 7-year, 5.5% semiannual coupon bond is $1,029.23. The
bond’s price value of a basis point is closest to:
a) $0.05.
b) $0.60.
c) $5.74.
4. A bond has a convexity of 114.6. The convexity effect, if the yield decreases by 110 basis
points, is closest to:
a) –1.673%
b) +0.693%
c) +1.673%
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5. The modified duration of a bond is 7.87. The approximate percentage change in price
using duration only for a yield decrease of 110 basis points is closest to:
a) –8.657%
b) +7.155%.
c) +8.657%.
6. Assume a bond has an effective duration of 10.5 and a convexity of 97.3. Using both
of these measures, the estimated percentage change in price for this bond, in response
to a decline in yield of 200 basis points, is closest to:
a) 19.05%.
b) 22.95%
c) 24.89%
7. Two bonds are similar in all respects except maturity. Can the shorter-maturity bond
have greater interest rate risk than the longer-term bond?
a) No, because the shorter-maturity bond will have a lower duration.
b) Yes, because the shorter-maturity bond may have a higher duration.
c) Yes, because short-term yields can be more volatile than long-term yields.
8. An investor with an investment horizon of six years buys a bond with a modified duration
of 6.0. This investment has:
a) no duration gap
b) a positive duration gap.
c) a negative duration gap.
9. A market rate of discount for a single payment to be made in the future is:
a) a spot rate.
b) a simple yield.
c) a forward rate.
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10. Based on semiannual compounding, what would the YTM be on a 15-year, zero-coupon,
$1,000 par value bond that’s currently trading at $331.40?:
a) 3.750%
b) 5.151%
c) 7.500%
11. If spot rates are 3.2% for one year, 3.4% for two years, and 3.5% for three years, the
price of a $100,000 face value, 3-year, annual-pay bond with a coupon rate of 4% is
closest to:
a) $101,420.
b) $101,790.
c) $108,230.
12. Which of the following yield curves is least likely to consist of observed yields in the
market?
a) Forward yield curve.
b) Par bond yield curve.
c) Coupon bond yield curve
13. The 4-year spot rate is 9.45%, and the 3-year spot rate is 9.85%. What is the 1-year
forward rate three years from today?
a) 8.258%
b) 9.850%
c) 11.059%.
14. Given the following spot and forward rates:
3
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ii. One-year forward rate one year from today is 7.63%
iii. One-year forward rate two years from today is 12.18%.
iv. One-year forward rate three years from today is 15.5%
The value of a 4-year, 10% annual-pay, $1,000 par value bond is closest to:
b) $996.
c) $1,009
d) $1,086.
15. A corporate bond is quoted at a spread of +235 basis points over an interpolated 12- year
U.S. Treasury bond yield. This spread is:
a) a G-spread.
b) an I-spread.
c) a Z-spread
16. For the price of a futures contract to be greater than the price of an otherwise
equivalent forward contract, interest rates must be:
a) uncorrelated with futures prices.
b) positively correlated with futures prices
c) negatively correlated with futures prices.

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14. Given the following spot and forward rates:

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