15. If a financial institution has a portfolio that half (50%) consists of bonds with a tenor of five years andthe other half is in the form of bonds with a duration of seven years, what is the duration/tenor of thefinancial institution's portfolio?A) 12 yearsB) 7 yearsC) 6 yearsD) 5 years16. If the corporation/company begins to experience large losses, the default risk on the company's bondswill beA) increases and the uncertainty of bond returns increases, meaning that the expected return on thecompany's bonds will decrease.B) increases and the uncertainty of bond returns decreases, which means the expected return on thecompany's bonds will decrease.C) decreases and the uncertainty of bond returns decreases, which means the expected return of thecompany's bonds will decrease.D) decreases and the uncertainty of bond returns decreases, which means the expected return of thecompany's bonds will increase.

The financial portfolio is made for minimizing the risk and maximizing the profit.

15. If a financial institution has a portfolio that half (50%) consists of bonds with a tenor of five years and the other half is in the form of bonds with a duration of seven years, what is the duration/tenor of the financial institution's portfolio? A) 12 years B) 7 years C) 6 years D) 5 years

15. If a financial institution has a portfolio that half (50%) consists of bonds with a tenor of five years and the other half is in the form of bonds with a duration of seven years, what is the duration/tenor of the financial institution's portfolio? A) 12 years B) 7 years C) 6 years D) 5 years

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter27: The Basic Tools Of Finance

Section: Chapter Questions

Problem 3PA

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Question

15. If a financial institution has a portfolio that half (50%) consists of bonds with a tenor of five years and
the other half is in the form of bonds with a duration of seven years, what is the duration/tenor of the
financial institution's portfolio?
A) 12 years
B) 7 years
C) 6 years
D) 5 years
16. If the corporation/company begins to experience large losses, the default risk on the company's bonds
will be
A) increases and the uncertainty of bond returns increases, meaning that the expected return on the
company's bonds will decrease.
B) increases and the uncertainty of bond returns decreases, which means the expected return on the
company's bonds will decrease.
C) decreases and the uncertainty of bond returns decreases, which means the expected return of the
company's bonds will decrease.
D) decreases and the uncertainty of bond returns decreases, which means the expected return of the
company's bonds will increase.

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