1. Mr. Harris is a buy-and-hold investor who mainly deals in fixed income securities. What will be the most likely impact on the returns of his fixed income portfolio, if the market interest rates are lower in future?

A. Returns will not change.
B. Returns will be higher.
C. Returns will be lower.


2. Investor A is a long-term bond investor. Investor B is a short-term bond investor. If the market interest rates are lower in future:

A. investor A will gain the most.
B. investor B will gain the most.
C. both investors will have similar gains.


3. An investor purchases an annual coupon bond with a 5% coupon rate and 10 years remaining until maturity.
The investor’s investment horizon is three years.
The Macaulay duration of the bond is 7.52 years. The duration gap at the time of purchase is closestto:

A. -4.52 years.
B. 4.52 years.
C. 0 years.


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