If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio?

Measuring Interest-Rate Risk: Duration
1) Duration is
A) an assetʹs term to maturity.
B) the time until the next interest payment for a coupon bond.
C) the average lifetime of a debt securityʹs stream of payments.
D) the time between interest payments for a coupon bond.
Answer: C
Ques Status: Previous Edition
2) Comparing a discount bond and a coupon bond with the same maturity,
A) the coupon bond has the greater effective maturity.
B) the discount bond has the greater effective maturity.
C) the effective maturity cannot be calculated for a coupon bond.
D) the effective maturity cannot be calculated for a discount bond.
Answer: B
Ques Status: Previous Edition
3) The duration of a coupon bond increases
A) the longer is the bondʹs term to maturity.
B) when interest rates increase.
C) the higher the coupon rate on the bond.
D) the higher the bond price.
Answer: A
Ques Status: Previous Edition
4) All else equal, when interest rates ________, the duration of a coupon bond ________.
A) rise; falls
B) rise; increases
C) falls; falls
D) falls; does not change
Answer: A
Ques Status: New
5) All else equal, the ________ the coupon rate on a bond, the ________ the bondʹs duration.
A) higher; longer
B) higher; shorter
C) lower; shorter
D) greater; longer
Answer: B
Ques Status: Previous Edition
6) If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio?
A) 12 years
B) 7 years
C) 6 years
D) 5 years
Answer: C
Ques Status: Previous Edition
7) An assetʹs interest rate risk ________ as the duration of the asset ________.
A) increases; decreases
B) decreases; decreases
C) decreases; increases
D) remains constant; increases
Answer: B
Ques Status: Previous Edition