1. Bond A and B are identical expect that, bond B has a longer maturity. Which of these best explains the price impact of a fall in yield?
The impact will be greatest for A because its duration is longer
The impact will be greatest for A because its duration is shorter
The impact will be greatest for B because its duration is longer
The impact will be greatest for B because its duration is shorter
2. Principal components analysis shows that the second most common yield curve shift is best represented as a:
An equal shift of all points
A shift of all points in the same direction
A tilting of the yield curve
A bowing of the yield curve
3. Which theory best desribes the belief that investors naturally choose bonds with certain maturities, but can be tempted to invest in other bonds if sufficient yields are offered.
Pure Expectations
Liquidity Preference
Market Segmentation
Preferred Habitat