Investment Analysis Flashcards
7 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Analysis flashcards as text
A bond has a Macaulay duration of 5.0 years and a yield to maturity of 6% with annual compounding. What is its modified duration?
Answer: 4.72
Modified duration = Macaulay duration / (1 + YTM) = 5.0 / 1.06 ≈ 4.72.
A bond has a modified duration of 7. If its yield rises by 50 basis points, what is the approximate percentage price change?
Answer: −3.5%
%ΔP ≈ −ModDur × Δy = −7 × 0.005 = −3.5%.
A bond is trading at a premium to par. Which relationship must be true?
Answer: Coupon rate exceeds yield to maturity
A bond prices above par when its coupon rate is higher than the market's required yield.
What does positive convexity imply for an option-free bond?
Answer: Price gains from a yield decline exceed price losses from an equal yield increase
Positive convexity makes the price-yield curve bowed, so gains outweigh losses for equal yield moves.
A bond pays an annual coupon of $60 and is priced at $950. What is its current yield?
Answer: 6.32%
Current yield = $60 / $950 ≈ 6.32%.
What is the Macaulay duration of a 6-year zero-coupon bond?
Answer: 6 years
A zero-coupon bond has a single cash flow at maturity, so its Macaulay duration equals its maturity.
Why does a callable bond exhibit negative convexity when yields are low?
Answer: Price appreciation is capped near the call price as the issuer becomes likely to call
As yields fall, the call option gains value and limits the bond's price upside, creating negative convexity.