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Finance 4319 Exam 2 questions and answers.
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Finance 4319 Exam 2 questions and answers.
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Finance 4319 Exam 2 questionsand answers
Which of following describes forward rates?
A. Interest rates implied by current zero rates for
future periods of time
B. Interest rate earned on an investment that
starts today and last for n-years in the future
without
coupons
C. The coupon rate that causes a bond price to
equal its par (or principal) value
D. A single discount rate that gives the value of a
bond equal to its market price when applied to all
cash flows - answer A. Interest rates implied by
current zero rates for future periods of time
Bootstrapping involves
A. Calculating the yield on a bond
B. Working from short maturity instruments to
longer maturity instruments determining zero
rates at each step
C. Working from long maturity instruments to
shorter maturity instruments determining zero
rates
at each step
,D. The calculation of par yields - answer B. Working
from short maturity instruments to longer maturity
instruments determining zero rates at each step
Which of the following is true?
A. When interest rates in the economy increase, all
bond prices increase
B. As its coupon increases, a bond's price
decreases
C. Longer maturity bonds are always worth more
that shorter maturity bonds when the coupon
rates are the same
D. None of the above - answer D. None of the
above
Since the credit crisis that started in 2007 which of
the following have derivatives traders used as the
risk-free rate
A. The Treasury rate
B. The LIBOR rate
C. The repo rate
D. The overnight indexed swap rate - answer D.
The overnight indexed swap rate
The price of a 3-year zero coupon government
bond is 85.16. The price of a similar 4-year bond is
, 79.81. What is the yield to maturity (effective
annual yield) on the
4-year bond?
A)4.6%
B) 5.5%
C) 5.8%
D) 6.7% - answer C) 5.8%
The price of a 3-year zero coupon government
bond is 85.16. The price of a similar 4-year bond is
78.81. What is the 1-year implied forward rate
from year 3 to year 4?
A) 4.6%
B) 5.5%
C) 5.8%
D) 6.7% - answer D) 6.7%
The prices of 1, 2, 3, and 4-year zero coupon
government bonds are 95.42, 90.36, 85.16, and
78.81,
respectively. What is the continuously compounded
3-year zero yield?
A) 5.35%
B) 5.85%
C) 6.12%
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