Multiple choice

1. If a bond's volatility is 10% and the interest rate goes down by 0.75% (points) then the price of the bond:  

a. Decreases by 10% 

b. Decreases by 7.5% 

c. Increases by 7.5% 

d. Increases by 0.75% 

2. If a bond's volatility is 5% and the interest rate changes by 0.5% (points) then the price of the bond:  

a. Changes by 5% 

b. Changes by 2.5 % 

c. Changes by 7.5% 

d. None of the above 

3. Volatility of a bond is given by: I) Duration/ (1+yield) II) Slope of the curve relating the bond price to the interest rate III) Yield to maturity  

a. I only 

b. II only 

c. III only 

d. I and II only 

4. The term structure of interest rates can be described as the:  

a. Relationship between the spot interest rates and the bond prices 

b. Relationship between spot interest rates and stock prices 

c. Relationship between spot interest rates and maturity of a bond 

d. None of the above