Question

Which of the following Theorems is NOT one of Malkiel's Theorems regarding the relationship between YTM and bond prices?

	a.	The yield curve is generally upward sloping.
	b.	Longer-term bonds are more volatile than shorter-term bonds.
	c.	Lower coupon bonds are more volatile than higher coupon bonds.
	d.	Bond prices move inversely to bond yields.

Eric purchased a 12-year, 7% coupon bond that is callable in three years. Which type of duration is the best for Eric to use to estimate price changes?

	a.	Effective duration.
	b.	Modified duration.
	c.	Macaulay duration.
	d.	Portfolio duration.

Generally, fixed-income investors are subject to which of the following risks?

	a.	Interest rate risk.
	b.	All of the above.
	c.	Purchasing power risk.
	d.	Default risk.

Answer 1

1 ans: Malkiel's Theorems talks about the relationship between bond price and yield. Malkiel's Theorems have not mentioned that the yield curve is generally upward slpoing. so the correct option is "A"

2ans: The correct option is "A" that is Effective Duration. Effective duration is the appropriate measure of interest rate sensitivity of bonds with embedded options.

3Ans: Correct Answer "B". Fixed Income investor suffers from all kinds of risk. The bond may default, the bond price may fall due to interest rate rising and the fixed interest received in the future may not have the same purchasing power as of today.

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