20 Questions
| Total Attempts: 3036

Questions and Answers

- 1.Which of the following is true about a bond with a deferred call provision?
- A.
It could be called at any time during the tenure of the bond

- B.
Principal repayment can be deferred until it reaches maturity

- C.
It could not be called right after the date of issue

- 2.
- A.
10-year, 15% coupon

- B.
10-year, 10% coupon

- C.
3-year, 10% coupon

- 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?
- A.
$90 per share profit

- B.
$0 per share profit (break-even)

- C.
Unlimited losses

- 4.
- A.
An upward sloping yield curve

- B.
All cash payments will be received in a prompt and timely manner

- C.
All cash flows can be discounted at the same rate

- 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?
- A.
The value of two shares of stock

- B.
The value of one share of stock plus the exercise price

- C.
The exercise price

- 6.Which of the following statement is least accurate?
- A.
A Conventional mortgage is an example of an amortizing loan

- B.
Call provisions give the issuer the right and the obligation to retire all or a part of an issue prior to maturity

- C.
Sinking fund provisions provide for the repayment of principal through a series of payments over the life of the issue

- 7.Which of the following statement is incorrect ?
- A.
Accrued interest is the interest earned since the last coupon payment date and is paid by a bond buyer to a bond seller

- B.
Clean price is the quoted price of the bond without accrued interest

- C.
Full price refers to the quoted price without any accrued interest

- 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
- A.
$1,000

- B.
$1,203

- C.
$1,230

- 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?
- A.
91.87

- B.
83.17

- C.
91.35

- 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?
- A.
9.872 percent

- B.
10.365 percent

- C.
10.942 percent

- 11.When computing the yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the:
- A.
Yield to maturity at the time of the investment

- B.
Prevailing yield to maturity at the time interest payments are received

- C.
Coupon rate

- 12.
- A.
0.1

- B.
0.0738

- C.
0.05

- 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?
- A.
4.3

- B.
3.6

- C.
3.50

- 14.What bond type does the following price-yield curve represent and at which yield level is convexity equal to zero?
- A.
Callable bond with convexity close to zero at y2

- B.
Callable bond with convexity close to zero at y1 and y3

- C.
Puttable bond with convexity close to zero at y2

- 15.Which of the following five year bonds has the lowest interest rate sensitivity?
- A.
Floating rate bond

- B.
Option-free 5% coupon bond

- C.
Zero-coupon bond

- 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?
- A.
10

- B.
100

- C.
9

- 17.With any other factors remaining unchanged, which of the following statements regarding bonds is not valid?
- A.
The price of a callable bond increases when interest rates increase

- B.
Issuance of a callable bond is equivalent to a short position in a straight bond plus a long call option on the bond price

- C.
The put feature in a puttable bond lowers its yield compared with the yield of an equivalent straight bond

- 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:
- A.
Bond's actual price change is -4.83 and predicted price change according to formula that adjusts for both convexity and duration is -4.73

- B.
Bond's actual price change is -5.052996 and predicted price change according to a formula that adjusts for both convexity and duration is -4.85

- C.
Bond's actual price change is -4.83 and predicted price change according to a formula that adjusts for both convexity and duration is -4.83

- 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%.
- A.
A zero-coupon bond maturing in 5 years

- B.
A coupon-paying bond, with Macaulay Duration of 3.81 years and convexity of 16.39 years squared

- C.
A bond with a coupon of 10% maturing in 10 years that is immediately callable

- 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?
- A.
5.7%

- B.
6.4%

- C.
3.57%