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1 | |
If the nominal interest rate is 8% per year and the expected inflation rate is 3% per year, calculate the real rate of interest: |
| | A) | 8% |
| | B) | 5% |
| | C) | 2.86% |
| | D) | 4.85% |
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2 | |
A 5-year bond with 6% coupon rate and $1000 face value is selling for $852.10. Calculate the yield to maturity of the bond. (Assume annual interest payments.) |
| | A) | 9.23% |
| | B) | 5% |
| | C) | 8.78% |
| | D) | 9.89% |
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3 | |
Consider a bond with a face value of $1,000, a coupon rate of 6%, a yield to maturity of 6%, and three years to maturity. This bond's duration is: |
| | A) | 2.6 years |
| | B) | 2.8 years |
| | C) | 3.0 years |
| | D) | 3.2 years |
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4 | |
Consider a bond with a face value of $1,000, a coupon rate of 0%, a yield to maturity of 9%, and ten years to maturity. This bond's duration is: |
| | A) | 6.7 years |
| | B) | 7.5 years |
| | C) | 9.6 years |
| | D) | 10.0 years |
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5 | |
Consider a bond with a duration of 12 years and a market yield of 6%. This bond's volatility is: |
| | A) | 9.3% |
| | B) | 11.3% |
| | C) | 14.6% |
| | D) | 6.0% |
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6 | |
If the 3-year spot rate is 12% and the 2-year spot rate is 10%, what is the one-year forward rate of interest two years from now? |
| | A) | 3.7% |
| | B) | 16.1% |
| | C) | 9.5% |
| | D) | None of the above |
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7 | |
The term structure of interest rates can be described as the: |
| | A) | Relationship between the spot interest rates and the bond prices |
| | B) | Relationship between spot interest rates and stock prices |
| | C) | Relationship between spot interest rates and maturity of a bond |
| | D) | None of the above |
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8 | |
Bonds rated below BBB (Baa) are called: |
| | A) | investment grade bonds. |
| | B) | junk bonds. |
| | C) | risk-free bonds. |
| | D) | debentures. |
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9 | |
If the 20-year forward rate of interest is the same as the 19-year spot rate, what is the 20-year spot rate? |
| | A) | Smaller than the 19-year spot rate |
| | B) | Larger than the 19-year spot rate |
| | C) | Can't say without knowing the 21-year spot rate |
| | D) | The same as the 20 year forward rate |
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10 | |
The expectations hypothesis states that the forward interest rate is the: |
| | A) | Expected future spot rate |
| | B) | Always greater than the spot rate |
| | C) | Yield to maturity |
| | D) | None of the above |
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11 | |
The yield to maturity: |
| | A) | Is the present value of future coupons divided by the present value of the final principal payment |
| | B) | Is the discount rate at which the present value of promised interest and principal payments equals face value |
| | C) | Is the discount rate at which the present value of expected interest and principal payments equals market price |
| | D) | Is calculated by the same formula as the internal rate of return (IRR) |
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12 | |
The U.S. Treasury Inflation-Protected securities (TIPS) adjust |
| | A) | coupon payments for inflation. |
| | B) | the principal payment for inflation. |
| | C) | both "A" and "B". |
| | D) | none of the above. |
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13 | |
According to the liquidity - preference theory the forward rate is: |
| | A) | Less than the expected future spot rate |
| | B) | Greater than the expected future spot rate |
| | C) | Equal to the expected future spot rate |
| | D) | None of the above |
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14 | |
The liquidity preference hypothesis states that the forward rates are set higher than the expected spot rates because: |
| | A) | Of a downward sloping yield curve |
| | B) | Long-term rates are higher than short-term rates |
| | C) | Investors must be induced to buy the riskier long-term bonds |
| | D) | None of the above |
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15 | |
Which of the following rated bonds have the least risk? |
| | A) | AAA |
| | B) | AA |
| | C) | A |
| | D) | BBB |
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