Question

Assume that you are currently holding two bonds, and you decide to hold these 2 bonds only in the future. Bond 1 has 30 year to maturity, pays zero coupon, and its YTM is 10%. Bond 2 has 30 year to maturity, pays 3% annual coupons, and its YTM is 10%. Today, the weights of these two bonds in your portfolio are 50% and 50%, respectively. Everything else equal, if you expect a larger interest rate increase than other market participants, you (as an astute bond investor) should _________?

Question 10 options:

A)	decrease the weight of Bond 1 and increase the weight of Bond 2

B)	increase the weight of Bond 1 and decrease the weight of Bond 2

The most widely used monetary policy tool is _________.

Question 11 options:

A)	Open market operations

B)	Government spending policy (e.g., building infrastructure)

C)	Lowering tax rates

The major issues when you consider investing in a stock outside of the US include _________ .

Question 12 options:

A)	Overall economy performance across countries and regions

B)	Political risk

C)	Exchange rate risk (i.e., so-called currency risk)

D)	All of the above

Answer 1

1. Bond 1 is zero coupon whereas Bond 2 has 3% coupon. Higher is the coupon lower is the duration and lower is the coupon higher is the duration. Higher is the duration higher will be the change in price with increase in interest rate and price will decrease .To prevent fall in price Bond 2 should be increased.
Option A is correct option.

2. Option a is correct option. The most widely used monetary policy tool is Open Market operations. Government spending and lowering tax rate are fiscal policies.

3. Option d All of the above is correct option.