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StuDocu is not sponsored or endorsed by any college or university Chapter 6 testbank Bank Management (Western Sydney University) Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
Chapter 06 Testbank 1. Duration is defined as: A. the weighted-average time to maturity of a series of cash flows, using the relative present values of the cash flows as weights B. the weighted-average present values of a series of cash flows using the timing of the cash flows as weights C. the standard deviation of the time to maturity of a series of cash flows D. an asset's or a liability's time to maturity 2. Duration is seen as a more complete measure of an asset or a liability's interest rate sensitivity than maturity because it takes into account the: A. size of cash flows B. timing of cash flows C. size of cash flows and the asset or liability's time to maturity D. time of arrival of all cash flows plus the asset or liability's maturity 3. The duration of an asset or a liability for which there are intervening cash flows between issue and maturity: A. equals the asset or the liability's maturity B. exceeds the asset or the liability's maturity C. is smaller than the asset or the liability's maturity D. Not enough information to answer this question 4. The duration of a zero-coupon bond: A. is smaller than its maturity B. exceeds its maturity C. equals its maturity D. depends on the size and timing of intervening cash flows between issue and maturity 5. The special feature of consol bonds is that: A. their duration equals their maturity B. their maturity is infinite, while their duration is finite C. their maturity is finite, while their duration is infinite D. both, their maturity and their duration, are infinite Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
6. Suppose the yield of consol bond is 10%. Its duration is: A. 5 years B. 10 years C. 11 years D. 15 years 7. Suppose the yield of five-year zero-coupon bond is 10%. Its duration is: A. 5 years B. 10 years C. 11 years D. 15 years 8. Suppose the yield of five-year bond with 8% coupon is 10%. Its duration is: A. less than 5 years B. 5 years C. from 5 to 10 years D. more than 10 years 9. With increasing maturity of a fixed-income asset or liability the asset or liability's duration: A. increases, but at a decreasing rate B. decreases C. increases at an increasing rate D. increases at a constant rate 10. The lower the coupon or interest payment on a security: A. the lower its duration B. coupon or interest payments have no impact on a security's duration C. the higher its duration D. None of the listed options are correct. 11. Duration is a direct measure of the interest rate sensitivity of an asset or liability, which means that: A. the smaller the duration, the more sensitive the price of that asset or liability B. the larger the duration, the less sensitive the price of that asset or liability C. the larger the duration, the more sensitive the price of that asset or liability D. None of the listed options are correct. Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
12. As interest rates increase the price of an asset or liability: A. remains constant B. decreases C. increases D. increases and it increases at a faster rate 13. As interest rates decrease the price of an asset or liability: A. remains constant B. decreases C. increases D. increases and it increases at a faster rate 14. The duration gap can be used to measure how changes in the interest rate affect an FI's: A. net worth B. maturity gap strategy C. liquidity strategy D. All of the listed options are correct. 15. The leverage adjusted duration gap measures: A. the change in an FI's net worth if interest rates change B. the degree of duration mismatch in an FI's profit and loss statement C. the degree of duration mismatch in an FI's balance sheet D. All of the listed options are correct. 16. The larger an FI's absolute leverage adjusted duration gap: A. the less exposed the FI is to interest rate shocks B. the more exposed the FI is to interest rate shocks C. the lower the FI's net worth D. None of the listed options are correct. 17. The effect of interest rate changes on the market value of an FI's net worth breaks down into three effects, these being the leverage adjusted duration gap, the: A. size of the FI and the reputation of the FI B. size of the FI and the size of the interest rate shock C. reputation of the FI and the size of the interest rate shock D. size of the FI and the direction of the interest rate changes Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879