1. | Which of the following is true about a bond with a deferred call provision? |
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2. | All other things being equal, which one of the following bonds has the greatest volatility? |
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3. | What is the worst-case profitability scenario for an investor who sold a call on the firm's stock for a premium of $10 and a strike price of $100? |
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4. | One of the most commonly used yield spread measures is the nominal spread. Which of the following is least likely a limitation of nominal spread? The nominal spread assumes: |
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5. | Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price? |
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6. | Which of the following statement is least accurate? |
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7. | Which of the following statement is incorrect ? |
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8. | An FRA settles in 30 days:- • $1 million notional • Based on 90-day LIBOR • Forward rate of 6% • Actual 90-day LIBOR at settlement is 6.5% Calculate the PV of the FRA |
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9. | Suppose that a corporate bond and a government bond have equivalent characteristics. They both have a coupon rate of 10% paid annually and have two years remaining to maturity. Assuming a flat government term structure of 15% which of the following is a possible price of the corporate bond? |
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10. | A firm has just issued $1,000 face value bonds with a coupon rate of 8%, paid semi-annually, and a maturity of 15 years. If the issue price for this bond is $785.50, what is the yield-to-maturity, stated annually? |
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11. | When computing the yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the: |
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12. | Consider a $1,000 par value bond with a 7% annual coupon. The bond pays interest annually. There are 2 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10%? Use simple compounding. |
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13. | Ghanshyam group’s economics department has forecast that interest rates are going to change by 70 basis points. Vijay, a fixed-coupon bond portfolio manager with asset value of $120.00 million at Ghanshyam Group, forecasts that the portfolio’s value will increase by $2.2 million if interest rates fall and will decrease by $2.0 million if interest rates rise. Which of the following choices is closest to the portfolio’s effective duration? |
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14. | What bond type does the following price-yield curve represent and at which yield level is convexity equal to zero? |
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15. | Which of the following five year bonds has the lowest interest rate sensitivity? |
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16. | A zero-coupon bond with a maturity of 10 years has an annual effective yield of 10%. What is the closest value for its modified duration? |
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17. | With any other factors remaining unchanged, which of the following statements regarding bonds is not valid? |
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18. | A newly issued 8% bond that pays semiannual coupons has principal value of $1,000 with a bond life of 1 year and a yield of 6% per year. The Macaulay Duration of the bond is 0.9809 and convexity is 1.3780. If the yield changes from 6% to 6.5%, then the statement that best describes the actual bond price change is: |
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19. | Of the following bonds, which one will suffer the largest proportional price increase after a decrease in interest rates of 10 basis points? Assume the annual yield is 7%. |
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20. | A 10-year, 8% coupon bond currently sells for $90. A 10-year, 4% coupon bond current 1 sells for $80. What is the 10-year zero rate? |
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