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MCN 538 Exam 1 Actual Exam Newest 2025/2026
Complete Questions And Correct Detailed Answers
(Verified Answers) |Newest Exam Version!!!
1. How price sensitive a security is to interest rate
changes. - Answer-- Duration
2. The blank the duration, the blank the price sensitivity. -
Answer-- Greater/ (shorter), greater/ (lesser)
3. Negative percent change in quantity demanded divided
by percent change in price equals? - Answer-- Price
elasticity of demand
4. Weighted average of the time until expected cash flows
from a security will be received, relative to the security's
price. - Answer-- Duration
5. Macaulay's duration of a zero coupon bond is equal to
its? - Answer-- Maturity
6. Macaulay's duration divided by (1 + interest rate)
equals? - Answer-- Modified duration
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7. Investors often do not hold securities until maturity;
Present value calculations assume all coupon payments
are reinvested at the calculated yield to maturity; Many
securities carry embedded options which complicates
valuation since it is unknown if options will be exercised
and impact cash flows actually received. These are three
reasons why...? - Answer-- Traditional valuation methods
are too simplistic
8. Allow investors to vary assumptions about holding
period, reinvestment rate, and sale/maturity value. -
Answer-- Total return analysis
9. What are three sources of return from owning a bond? -
Answer-- Coupon interest, reinvestment interest (interest-
on-interest), and capital gain/loss at maturity/sale
10. When valuing a bond, bond will be priced as a
package of zero coupon instruments with...? - Answer-- A
different discount rate applied to each
11. A 360-day year is considered a...? - Answer-- Bankers
year
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12. What is one reason for a higher effective rate of
interest? - Answer-- Rates are reported on a 360-day year
basis but interest is actually earned all 365 days of the
year
13. The difference between the purchase price and par
value at maturity represents what? - Answer-- Interest
14. What are two problems with the discount rate? -
Answer-- The return is based on the final price/maturity
value, rather than the initial investment; It assumes a 360-
day year which understates the effective annual rate
15. Both the 365-day yield and effective annual rate on the
CD are below the rates on the T-Bill. What does this
demonstrate? - Answer-- The difference between discount
and interest-bearing instruments
16. When you match duration to investment horizon, there
is very little change in "ending value." Why is this? -
Answer-- Insulates against interest rate changes, relative
certainty
MCN 538 Exam 1 Actual Exam Newest 2025/2026
Complete Questions And Correct Detailed Answers
(Verified Answers) |Newest Exam Version!!!
1. How price sensitive a security is to interest rate
changes. - Answer-- Duration
2. The blank the duration, the blank the price sensitivity. -
Answer-- Greater/ (shorter), greater/ (lesser)
3. Negative percent change in quantity demanded divided
by percent change in price equals? - Answer-- Price
elasticity of demand
4. Weighted average of the time until expected cash flows
from a security will be received, relative to the security's
price. - Answer-- Duration
5. Macaulay's duration of a zero coupon bond is equal to
its? - Answer-- Maturity
6. Macaulay's duration divided by (1 + interest rate)
equals? - Answer-- Modified duration
,2|Page
7. Investors often do not hold securities until maturity;
Present value calculations assume all coupon payments
are reinvested at the calculated yield to maturity; Many
securities carry embedded options which complicates
valuation since it is unknown if options will be exercised
and impact cash flows actually received. These are three
reasons why...? - Answer-- Traditional valuation methods
are too simplistic
8. Allow investors to vary assumptions about holding
period, reinvestment rate, and sale/maturity value. -
Answer-- Total return analysis
9. What are three sources of return from owning a bond? -
Answer-- Coupon interest, reinvestment interest (interest-
on-interest), and capital gain/loss at maturity/sale
10. When valuing a bond, bond will be priced as a
package of zero coupon instruments with...? - Answer-- A
different discount rate applied to each
11. A 360-day year is considered a...? - Answer-- Bankers
year
, 3|Page
12. What is one reason for a higher effective rate of
interest? - Answer-- Rates are reported on a 360-day year
basis but interest is actually earned all 365 days of the
year
13. The difference between the purchase price and par
value at maturity represents what? - Answer-- Interest
14. What are two problems with the discount rate? -
Answer-- The return is based on the final price/maturity
value, rather than the initial investment; It assumes a 360-
day year which understates the effective annual rate
15. Both the 365-day yield and effective annual rate on the
CD are below the rates on the T-Bill. What does this
demonstrate? - Answer-- The difference between discount
and interest-bearing instruments
16. When you match duration to investment horizon, there
is very little change in "ending value." Why is this? -
Answer-- Insulates against interest rate changes, relative
certainty
