Ann Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X) and a puttable bond (Bond Y). She wants to examine the interest rate sensitivity of these two bonds to a parallel shift in the benchmark yield curve. Assuming an interest rate volatility of 10%, her valuation software shows how the prices of these bonds change for 30-bps shifts up or down.
	Bond X	Bond Y
Time to maturity	3 years from today	3 years from today
Coupon	3.75% annual	3.75% annual
Type of bond	Callable at par one year from today	Putable at par one year from today
Current price (% of par)	100.594	101.33
Price (% of par) when shifting the benchmark yield curve down by 30 bps	101.194	101.882
Price (% of par) when shifting the benchmark yield curve up by 30 bps	99.860	100.924

The effective duration for Bond X is closest to:

	A.	0.67
	B.	2.21
	C.	4.42
	D.	3.56

Ann Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X) and a puttable bond (Bond Y). She wants to examine the interest rate sensitivity of these two bonds to a parallel shift in the benchmark yield curve. Assuming an interest rate volatility of 10%, her valuation software shows how the prices of these bonds change for 30-bps shifts up or down.
	Bond X	Bond Y
Time to maturity	3 years from today	3 years from today
Coupon	3.75% annual	3.75% annual
Type of bond	Callable at par one year from today	Putable at par one year from today
Current price (% of par)	100.594	101.33
Price (% of par) when shifting the benchmark yield curve down by 30 bps	101.194	101.882
Price (% of par) when shifting the benchmark yield curve up by 30 bps	99.860	100.924

• The effective duration for Bond Y is closest to:
• A.
• 0.48
• B.
• 0.96
• C.
• 1.58
• D.
• 2.21

Ann Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X) and a puttable bond (Bond Y). She wants to examine the interest rate sensitivity of these two bonds to a parallel shift in the benchmark yield curve. Assuming an interest rate volatility of 10%, her valuation software shows how the prices of these bonds change for 30-bps shifts up or down.
	Bond X	Bond Y
Time to maturity	3 years from today	3 years from today
Coupon	3.75% annual	3.75% annual
Type of bond	Callable at par one year from today	Putable at par one year from today
Current price (% of par)	100.594	101.33
Price (% of par) when shifting the benchmark yield curve down by 30 bps	101.194	101.882
Price (% of par) when shifting the benchmark yield curve up by 30 bps	99.860	100.924

• When the option embedded in Bond Y is in the money, the one-sided durations most likely
• show that the bond is:

	A.	more sensitive to a decrease in interest rates
	B.	more sensitive to an increase in interest rates
	C.	equally sensitive to a decrease or to an increase in interest rates
	D.	need more information to answer