5. RiskManagement

Interest Risk — Quiz

Test your understanding of interest risk with 5 practice questions.

Practice Questions

Question 1

Which of the following best describes the primary impact of an increase in interest rates on a company's floating-rate assets?

Question 2

A company has a bond with a duration of 9 years and a convexity of 0.7. If interest rates increase by 0.5%, what is the approximate percentage change in the bond's price, considering both duration and convexity? Use the formula: $$\Delta P \approx -Duration \times \Delta y + \frac{1}{2} \times Convexity \times (\Delta y)^2$$

Question 3

What is the primary concern for a company with a high proportion of fixed-rate assets in an environment of declining interest rates?

Question 4

Which of the following best describes the primary benefit of using an interest rate swap to convert a fixed-rate liability to a floating-rate liability?

Question 5

A financial institution has assets with an average duration of 6 years and liabilities with an average duration of 4 years. If interest rates increase by 0.5%, what is the approximate impact on the institution's net worth?