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100
Bonds 104:
Immunization
Test your knowledge
Choose wisely. There is only one correct answer to each question.
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1.
Maintaining a fixed rate of return on a bond for a specific period of time is known as _______.
Choose wisely. There is only one correct answer.
Duration
Immunization
Time horizon
Yield
Immunization. Immunization is a way of aiming to help protect returns.
2.
A bond portfolio is immunized when ________.
Choose wisely. There is only one correct answer.
Its time horizon is longer than its duration
Its duration is longer than its time horizon
Its duration is equal to its time horizon
Its duration is equal to its time horizon. A bond portfolio is immunized when its duration is equal to its time horizon.
3.
Combination matching can lower the reinvestment risk of a portfolio.
Choose wisely. There is only one correct answer.
True
False
True. Combination matching can lower the reinvestment risk of a portfolio.
4.
Which is not true about bond duration?
Choose wisely. There is only one correct answer.
It can be used to measure a bond's price volatility.
It is made up of weighted cash-flow averages over a bond's entire life.
The shorter a bond's duration, the greater its price volatility.
It can be used to determine how interest rates will affect a bond's value.
The shorter a bond's duration, the greater its price volatility. In reality, the longer a bond's duration, the greater its price volatility.
5.
Immunization protects a bond's price from changing interest rates.
Choose wisely. There is only one correct answer.
True
False
True. When a bond portfolio is immunized, it is designed to be "immune" to price changes due to fluctuating interest rates.
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