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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) | 4.91% |
| | 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 forward rate of interest? |
| | 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 | |
Which of the following statements is true? |
| | A) | The spot interest rate is a weighted average of yields to maturity |
| | B) | Yield to maturity is the weighted average of spot interest rates |
| | C) | The yield to maturity is always higher than the spot rates |
| | D) | None of the above |
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| 9 | |
Comparing a 1-year bond and a 5-year bond, which will experience a larger price change in price if interests rate rise? Assume equivalent risk and identical coupons. |
| | A) | 1 year bond |
| | B) | 5 year bond |
| | C) | Both will change equally |
| | D) | More information is needed to answer this question. |
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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 | |
If the yield to maturity is higher than the coupon rate, the bond price will be |
| | A) | Below par |
| | B) | Above par |
| | C) | At par |
| | D) | Cannot be determined |
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| 12 | |
Duration tells you |
| | A) | When you receive the final payment |
| | B) | When you receive the first payment |
| | C) | The average time to each payment |
| | D) | The average change in interest rates |
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| 13 | |
The bid price is: |
| | A) | The price investors receive if they sell the bond |
| | B) | The price investors need to buy a bond |
| | C) | The profit the dealer makes when selling a bond |
| | D) | Both A and B are correct |
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| 14 | |
Which of the following statements is most consistent with expectations theory? |
| | A) | If short-term rates are equal to long-term rates, then investors must be expecting short-term rates to rise. |
| | B) | If short-term rates are higher than long-term rates, then investors must be expecting short-term rates to rise. |
| | C) | If short-term rates are lower than long-term rates, then investors must be expecting short-term rates to rise. |
| | D) | None of the above |
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| 15 | |
A 5 year $1,000 par value bond pays a 6.50% annual coupon. Given a YTM of 8.0%, what is the price of the bond today? |
| | A) | $780 |
| | B) | $860 |
| | C) | $940 |
| | D) | $1000 |
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| 16 | |
What is the expected YTM on a bond that pays a $15 coupon annually has a $1,000 par value, and matures in 6 years if the current price of the bond is $978? |
| | A) | 1.89% |
| | B) | 3.67% |
| | C) | 9.78% |
| | D) | 15.00% |
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| 17 | |
Bonds that simply make one future payment are known as _________ bonds. |
| | A) | Once |
| | B) | Short |
| | C) | Close |
| | D) | Stripped |
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| 18 | |
Volatility is ________ at lower interest rates, and _________ at higher interest rates. |
| | A) | higher, lower |
| | B) | lower, higher |
| | C) | unchanged, lower |
| | D) | higher, unchanged |
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| 19 | |
The value of any bond is equal to |
| | A) | The cash payments discounted at the forward rates. |
| | B) | The cash payments discounted at the spot rates. |
| | C) | The cash payments discounted at the duration rates. |
| | D) | The par value discounted at the spot rates. |
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| 20 | |
Real interest rates can change. |
| | A) | True |
| | B) | False |
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| 21 | |
The longer a bond's duration, the lower its volatility. |
| | A) | True |
| | B) | False |
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| 22 | |
When you buy a US treasury bond, you can be confident you will get your money back. |
| | A) | True |
| | B) | False |
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| 23 | |
Duration of a pure discount bond is: |
| | A) | Equal to its half-life |
| | B) | Less than a zero coupon bond |
| | C) | Equal to its liabilities hedged |
| | D) | Equal to its maturity |
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