Chapter 8

Question 1

Mac Du is a mesure of

Answer 1

Volatility, the higher the Mac Du, the more volatil

Question 2

Strip bond Mac Du =

Answer 2

Maturity

Question 3

Horizon analysis

Answer 3

Period of the life of the bond when interest change

Question 4

Contingent immunization

Answer 4

Need to monitor the cost to purchase an appropriate strip bond

Question 5

Index most replicated for bonds

Answer 5

FTSE TMX Global Debt Capital Market

Question 6

Mod Du formula

Answer 6

Mac Du/(1+(yield/payment per year))

Question 7

Intramarket

Answer 7

4 transactions with Canada and US issuers

Question 8

Intermarket

Answer 8

2 canadian bond issuers

Question 9

Ride the yield curve

Answer 9

When no change in the interest rate

Question 10

Tracking error minimisation

Answer 10

Relies on historical data and focus on replicating an index’s return

Question 11

Low coupon bonds

Answer 11

Are affected more by rate changes

Question 12

3 ways duration can be used

Answer 12

1. Compute the effective average maturity
2. Help immunize against interest rate sensibility
3. Mesure how the bond (or portfolio) is to change on interest rate

Question 13

A Box trade

Answer 13

Two swaps, 4 transactions

Question 14

Bond swap

Answer 14

Buy and sell bonds related or not

Question 15

Duration composants

Answer 15

Maturity and coupon rate

Question 16

Stratified sampling isssues

Answer 16

Matching some cells and ignores the correlation between cells

Question 17

Box trade

Answer 17

2 swaps, 4 bonds same two issuers and no change in the duration, risk exposure and amount invested

Question 18

A rate anticipation swap is?

Answer 18

Switching funds from one end of the yield curve to another

Question 19

Strategy used to replicate an index with bonds with representative bonds in each cell with same proportion

Answer 19

Stratified sampling

Question 20

Fixe income traders at broker dealers focus on

Answer 20

Absolute performance

Question 21

2 components on interest rate risk

Answer 21

Price risk and reinvestment risk

Question 22

Strategy used to replicated an index by replicating the attribures of an index

Answer 22

Cellular sampling, portfolio is broken into cells: TTM, coupon rate, credit risk

Question 23

3 attributes of a bond using stratified sampling

Answer 23

TTM, credit rating and coupon rate

Question 24

Deep discount have

Answer 24

Long maturity and low mod du

Question 25

If bond xyz fatten vs gouv bond

Answer 25

Mgr should execute an intermarket box trade

Question 26

If the yield curve for the higher yielding issuer will steepen or flatten relative to the yield curve of the lower yielding

Answer 26

He should do a box trade

Question 27

Proprietary traders at broker/dealer

Answer 27

Can do leverage and/or short selling