CPP YMPE & YAMPE

Question 1

Bonds – What is the inverse relationship between price and yield?

Answer 1

When rates rise, prices fall; when rates fall, prices rise.

Question 2

Bonds – What is the current yield formula?

Answer 2

Annual Coupon ÷ Current Price.

Question 3

Bonds – What is yield to maturity (YTM)?

Answer 3

The total expected return if the bond is held to maturity.

Question 4

Bonds – What is modified duration?

Answer 4

Approximate % price change for a 1% change in yield: ΔP ≈ −Duration × ΔY.

Question 5

Bonds – What increases duration?

Answer 5

Longer maturity and lower coupon.

Question 6

Bonds – What decreases duration?

Answer 6

Shorter maturity and higher coupon.

Question 7

Bonds – What bond has the highest duration for its term?

Answer 7

A zero-coupon bond.

Question 8

BA II Plus – How do you calculate real return?

Answer 8

(1 + Nominal) ÷ (1 + Inflation) – 1.

Example: 1.07 ÷ 1.0225 – 1 = 0.0466 (4.66%).

Question 9

BA II Plus – How to calculate bond price (semi-annual)?

Answer 9

N = yrs×2, I/Y = rate/2, PMT = coupon/2, FV = 1000, CPT PV.

Question 10

BA II Plus – What does duration estimate?

Answer 10

Sensitivity of price to rate changes; no direct key, use formula manually.

Question 11

BA II Plus – What’s the mental shortcut for real return?

Answer 11

Nominal – Inflation.

Question 12

Recognition – “Line tangent to efficient frontier” → ?

Answer 12

CML (Capital Market Line).

Question 13

Recognition – “Expected return vs beta” → ?

Answer 13

SML (Security Market Line).

Question 14

Recognition – “Non-diversifiable risk” → ?

Answer 14

Systematic (market) risk.

Question 15

Recognition – “Bond trades below par” → ?

Answer 15

YTM > Coupon (discount bond).

Question 16

Recognition – “Highest Sharpe ratio” → ?

Answer 16

Best portfolio efficiency (Market Portfolio on CML).