Quiz 1 Solutions, F2
1. The spot rates for 1 year and 2 years are 4% and 5%, respectively. What is
the 1-year rate 1-year forward?
a.
b.
c.
d.
5.01
4.56
6.01
9.61
(1.04)(1+f) = 1.05^2
Answer (c)
2. An upward sloping term structure implies, for the most part
a.
b.
c.
d.
Decreasing forward rates
Increasing forward rates
Forward rates all equal
Forward rates can’t be determined
Answer (b)
3. The three successive 1-year rates are 1.00, 1.80, and 2.60 (the last two are
forward rates). What is the 3-year spot rate?
a.
b.
c.
d.
1.55
1.80
5.49
2.60
(1.01*1.018*1.026) = (1+r)^3 = (1.01*1.018*1.026)^1/3 - 1
Answer (b)
4. In our context (fixed income class) TIPS are:
a. Inflation protected securities issued by corporations
b. The pointed or rounded end or extremity of something slender or
tapering
c. Amount of money added to restaurant bill to help waiters pay for college
d. Inflation protected securities issued by the government
Answer (d)
1
5. Accrued interest
a.
b.
c.
d.
Is the difference between flat and full prices
Is the difference between full and dirty prices
Is the difference between quoted and clean prices
Is the sum of accumulated value and clean prices
Answer (a)
6. The 5 1/10 s of 11/15/2027 pay coupons on February 1 and August 1 of each
year. If a bond with face value of $3,000 is sold on May 1, and assuming
30/360 convention, what is the amount of the accrued interest?
a.
b.
c.
d.
$3.75
$11.33
$38.25
$111.11
C: $3,000 (90/180) (5.1%/2) = 38.25
Answer (c)
7. The yield measure that ignores the time value of money is
a.
b.
c.
d.
Yield to maturity
Current yield
IRR
Yield to call/put
Answer (b)
8. [Circle all the correct answers]. A US Treasury bill
a.
b.
c.
d.
Is a zero-coupon security
Is sold at par
Has a maturity of one year or less
Is sold at a discount
Answer (a,c,d)
For problems 9-10 below, you are given the following par bonds with the...