1. An investor with a 10 year investment horizon current has $10,000 invested in bonds with a duration of 7.5. If he invests an additional $10,000, which of the following bonds would best immunize his portfolio?

a) A bond with duration of 12.50

b) A bond with duration of 10.00

c) A bond with duration of 15.00

2. Yield spreads are often calculated as the difference between the interest rate on a risky bond and the interest rate on:

a) Government Bonds

b) Commercial Paper

c) Banker’s Acceptances

d) none of the above.

3. Effective duration is commonly used for:

a) Government Bonds

b) Bonds with embedded options

c) Equity Assets

d) none of the above.

4. The price of a 15 year, coupon bond, is expected to decline by 5% if interest rates go from 8% to 8.5%. For the same bond, if interest rate were to move from 8.5% to 9% the decline in the price would be:

a) 5%

b) Less than 5%

c) More than 5%

d) none of the above.