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FIXED INCOME2 > FI 2 RETAKE > Flashcards

FI 2 RETAKE Flashcards

1
Q

Which of the following circumstances is NOT a reason why the Treasury may deviate from the announced auction schedule?
Select one

  • Data announcement
  • Pattern of tax receipts and borrowing requirements
  • Financing policy decisions
  • Timing of Congressional action on the debt limit
A
  • Data announcement
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2
Q

Which of the following is NOT TRUE about bond issuance in the international bond market?
Select one:

  • The international bond market has neither registration formalities nor waiting queues.
  • The process is as follows: Decision to issue bond Announcement of bond issue Offering day with final terms. Selling group pays for bonds
  • Bond trading takes place before the closing day
  • A gray market for the bonds starts after the final terms have been set on the offering day
A
  • A gray market for the bonds starts after the final terms have been set on the offering day
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3
Q

These are treasury securities that pay coupons and that have maturities in the range of 1 to 10 years at the time of issuance:

  • Treasury bills
  • Treasury notes
  • Treasury bonds
  • Treasury inflation-protected securities
A
  • Treasury notes
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4
Q

It is the auction method used for primary issuance of Fixed Rate Treasury Notes.

  • Dutch Auction
  • English Auction
  • Noncompetitive Auction
  • Tap Auction
A
  • Dutch Auction
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5
Q

These are coupon-bearing securities that pay interest on a quarterly basis, net of 20% withholding tax.
Select one:

  • Treasury Bills
  • Fixed Rate Treasury Notes
  • Fixed Rate Treasury Bonds
  • Retail Treasury Bonds
A
  • Retail Treasury Bonds
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6
Q

Which of the following securities is NOT issued by the Bureau of the Treasury of the Republic of the Philippines locally?
Select one:

  • Treasury Bills
  • Fixed Rate Treasury Notes
  • Fixed Rate Treasury Bonds
  • Retail Treasury Bonds
A
  • Fixed Rate Treasury Bonds
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7
Q

Which of the following most accurately measures interest rate sensitivity for bonds with embedded options?
Select one:

  • Modified convexity
  • Effective duration
  • Modified duration
  • Macaulay duration
A
  • Effective duration
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8
Q

The integral part of the Treasury bidding and distribution system in which dealers and investors may either take long or short positions in the security to be auctioned by the Treasury for a future settlement on the issue date is called:
​​
-Spot trading
-Forward trading
-Pre-issue trading
-If-issued trading

A

-Forward trading

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9
Q

A bond’s nominal spread, zero-volatility spread, and option-adjusted spread will all be equal for a coupon bond if:

  • The coupon is low and the yield curve is flat.
  • The yield curve is flat and the bond is not callable.
  • The bond is option free
  • The coupon is high, the yield curve is flat and the bond has no embedded options
A
  • The coupon is high, the yield curve is flat and the bond has no embedded options
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10
Q

A callable bond will typically have the following convexity:

-Positive at all interest rates
-Negative at all interest rates
-Zero
-Positive at higher rates and negative at lower rates

A

-Positive at higher rates and negative at lower rates

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11
Q

Under what conditions would the yield-to-maturity on a 5-year zero-coupon Treasury bond be equal to the yield-to-maturity on a 5-year par coupon Treasury bond?

-The forward rate curve is flat
-The forward curve is upward sloping
-The forward curve is downward sloping
-Cannot be determined with the information given

A

-The forward rate curve is flat

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12
Q

Which of the following is NOT TRUE about the profitability of spread trades?

-The wider the bid-offer spread, the less profitable the trade
-if the repo rates are high, trader pays more to borrow but also receives more on the cash
-If the security that is short goes special, the trader makes money
-The trader will have to post margin when there is a haircut

A

-If the security that is short goes special, the trader makes money

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13
Q

A certain agency bond has a duration of 8.73 years and a convexity of 61.33. This implies that:

  • If market yields increase significantly (e.g. rates increase by 250 basis points) the price of the bond will fall by less than the amount indicated by duration alone
  • If market yields increase significantly the price of the bond will fall by more than the amount indicated by duration alone
  • If market yields decrease significantly. (eg. by 250 basis points), the price of the bond will increase by less than the amount indicated by the convexity measure alone
  • If market yields decrease significantly the price of the bond will increase by less than the amount indicated by duration
A
  • If market yields increase significantly (e.g. rates increase by 250 basis points) the price of the bond will fall by less than the amount indicated by duration alone
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14
Q

This is the type of auction used during issuances of Treasury Bills and re-issuances of Fixed Rate Treasury Notes
Select one:

-Competitive Auction
-Dutch Auction
-Tap Auction
-English Auction

A

-English Auction

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15
Q

A narrowing of credit spreads would LEAST impact the value of which of the following investments?
Select one:

  • AAA corporate bond
  • 30-year Treasury bond
  • BB+ rated corporate bond
  • Callable corporate bond
A

30-year Treasury bond

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16
Q

Given an upward sloping par yield curve, the spot rate curve will be
Select one

  • Upward sloping and higher
  • Upward sloping and lower
  • Downward sloping and higher
  • Downward sloping and lower
A
  • Upward sloping and higher
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17
Q

The Bureau of Treasury of the Republic of the Philippines conducts regular issuances of __ every second and fourth Tuesday and ___ every other Monday of the month.
Select one:

  • Treasury Bills, Fixed Rate Treasury Notes
    - Treasury Bills. Retail Treasury Bonds
  • Fixed Rate Treasury Notes, Treasury Bills
  • Fixed Rate Treasury Bonds, Fixed Rate Treasury Notes
A
  • Fixed Rate Treasury Notes, Treasury Bills
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18
Q

The most commonly used tool of the Fed to control interest rates is
Select one

  • The discount rate
    - The bank reserve requirement
  • Open market operations
    - Persuading banks to alter their Lending policies
A
  • Open market operations
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19
Q

The effect on a bond’s portfolio’s value of decrease in yield would be most accurately estimated by using:
Select one:

  • The price value of a basis point
  • The portfolio duration
  • The full valuation approach
  • Both the portfolio’s duration and convexity
A

The full valuation approach

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20
Q

Identify the most accurate statement concerning duration.
Select one:

  • The higher the yield, the greater the duration.
  • The higher the coupon, the greater the duration.
  • The difference in duration between two similar coupon-paying bonds maturing in more than 15 years is small
  • For coupon bonds, duration is the same as term to maturity.
A

The difference in duration between two similar coupon-paying bonds maturing in more than 15 years is small

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21
Q

The spot rate yield curve is closest to the
Select one:

  • Par rate yield curve
  • Reinvestment rate assumption curve
  • Zero-coupon bond curve
  • Option adjusted spread curve
A

Zero-coupon bond curve

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22
Q

Which of the following statements about credit spreads is most accurate?
Select one:

  • The credit spread is the difference between the yield on an on-the-run Treasury bond and the yield of an off-the-run Treasury bond of comparable maturity.
  • Credit spreads tend to be unaffected by the condition of the economy.
  • Normally, credit spreads increase with maturity, so that long-term bonds have larger credit spreads than shorter-term bonds.
  • Credit spreads tend to be smaller during periods of economic weakness.
A
  • Normally, credit spreads increase with maturity, so that long-term bonds have larger credit spreads than shorter-term bonds.
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22
Q

Which of the following would be chosen as a good investment from a relative value perspective?
Select one:

  • COLOM 7375 03/19 (Baa3/BBB-/BBB-) 128.40/129.35 (2 36%/221%)
  • INDON 11.625 03/19 (Baa3/BB+/BBB-) 147.25/148.25 (3.04%/290%)
  • PHILIP 8.375 06/19 (Ba1/BB+/BB+) 134.625/135.625 (2 46%/2.32%)
  • TURKEY 7.5 11/19 (Bai/BB/BBB-) 126.875/127.875 (3.06%/292%)
A

INDON 11.625 03/19 (Baa3/BB+/BBB-) 147.25/148.25 (3.04%/290%)

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23
Q

The _________ the zero-volatility spread will tend to diverge from the nominal spread by greater Amount

Select one:

  • flatter the yield curve
  • shorter the bond’s maturity
    - higher the bond’s coupon
  • slower the bond’s principal prepayment rate
A

- higher the bond’s coupon

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24
Q

A short position in the dollar bond can be implemented in the following ways EXCEPT
Select one

-Bond forward
-Regular/Forward settlement
-Repurchase agreement
-Reverse repurchase agreement

A

-Repurchase agreement

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25
Q

If the nominal yield spread is computed as the difference in yield-to-maturity of a callable corporate bond less the yield-to-maturity of a comparable maturity Treasury bond, the nominal spread will.
Select one:

-Overstate the attractiveness of the corporate bond.
-Understate the attractiveness of the corporate bond.
-Be less than the bond’s option adjusted spread (OAS).
-Be useful as a measure of the bond’s attractiveness versus other callable corporate bonds.

A

-Overstate the attractiveness of the corporate bond.

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26
Q

Which of the following statements most accurately describes the relationship between the economic health of a nation and credit spreads?
Select one

  • Credit spreads and economic well-being are not correlated.
  • Credit spreads decrease during an expanding economy because corporate cash flows are expected to rise
  • Credit spreads increase during an expanding economy because corporations invest in more speculative projects.
  • Credit spreads increase during an expanding economy because corporations are expected to have volatile earnings.
A
  • Credit spreads decrease during an expanding economy because corporate cash flows are expected to rise
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27
Q

Which of the following most accurately describes the relationship between liquidity and yield spreads relative to treasury issues? All else being equal, bonds with

-Less liquidity have lower yield spreads to Treasuries
-Greater liquidity have higher yield spreads to Treasuries
-Less liquidity have higher yield spreads to Treasuries
-Greater liquidity have negative yield spreads to treasuries

A

-Less liquidity have higher yield spreads to Treasuries

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28
Q

Yield-to-maturity and current yield on a bond are equal

  • When market interest rates begin to level off
  • If the bond sells at a price in excess of its par value
  • When the expected holding period is greater than one year
  • If the coupon and market interest rates are equal
A
  • If the coupon and market interest rates are equal
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29
Q

Under the pure expectations theory an inverted yield curve is interpreted as evidence that

  • Demand for long-term bonds is failing
  • Inflation is expected to rise in the future
  • Short-term rates are expected to fall in the future
  • Investors have very little demand for liquidity
A
  • Short-term rates are expected to fall in the future
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30
Q

Which of the following bond identification (aside from the ISIN) is CORRECT?

  • PHILIP 01/15/2021 4% 102/102.75
  • PHILIP 4% 01/15/2021 102/102.75
  • PHILIP 102/102.75 14% 01/15/2021
  • PHILIP 4% 102/102.75 01/15/2021
A
  • PHILIP 4% 01/15/2021 102/102.75
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31
Q

These are treasury securities that are auctioned every quarter and issued on the 15th day of the month of Feb, May, Aug, and Nov.

  • 2-year, 5-year, and 7-year treasury securities
  • 2-year, 10-year, and 30-year treasury securities
  • 3-year, 5-year, and 10-year treasury securities
  • 3-year, 10-year, and 30-year treasury securities
A
  • 3-year, 10-year, and 30-year treasury securities
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32
Q

The auction method used by the U.S. Treasury is:

-Uniform Prices Auctions
-Discriminatory Price Auctions
-Competitive Price Auctions
-Non-competitive Price Auctions

A

-Uniform Prices Auctions

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33
Q

When bonds are traded in spread, it requires:

  • Buying the bond and shorting the applicable US treasury benchmark
  • Buying the bond and buying the applicable US treasury benchmark
  • Shorting the bond and buying the applicable US treasury benchmark
  • Shorting the bond and shorting the applicable US treasury benchmark
A
  • Buying the bond and shorting the applicable US treasury benchmark
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34
Q

On-the-run issues have become more expensive than off-the-run issues as a consequence of the former’s:

  • Announcement
  • Benchmark status
  • Treasury auction cycle
  • Special Repo Rates
A

Special Repo Rates

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35
Q

Which of the following is NOT TRUE about the points that distinguish an .international bond from a domestic bond?

  • The underwriting syndicate is made up of banks from several countries.
  • U.S. commercial and investment banks cannot participate
  • Underwriting banks tend to use subsidiaries established in London or a foreign country with a favorable tax situation.
  • Corporate borrowers sometimes use a subsidiary incorporated in a country with a favorable tax and regulatory treatment.
A
  • U.S. commercial and investment banks cannot participate
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36
Q

According to the liquidity preference theory which of the following statements is FALSE?

  • All else equal, investors prefer short-term securities over long-term securities
  • Long-term rates should be higher than short-term rates because of the added risks
  • Investors perceive little risk differential between short-term and long-term securities
  • Borrowers will pay a premium for long-term funds to avoid having to roll over short-term debt
A
  • Investors perceive little risk differential between short-term and long-term securities
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37
Q

A par bond’s OAS and zero-volatility spread will tend to be the same if
Select one

  • The period of call protection on the bond is relatively short
  • The level of interest rate volatility is very high
  • The issuer can exercise the call feature more frequently
  • The bond has no embedded options
A
  • The bond has no embedded options
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38
Q

The total price volatility of a typical noncallable bond can be found by
Select one:

  • Adding the bond’s convexity effect to its effective duration
  • Adding the bond’s negative convexity to its modified duration
  • Subtracting the bond’s negative convexity from its positive convexity.
  • Subtracting the bond’s modified duration from its effective duration then add positive convexity
A
  • Adding the bond’s convexity effect to its effective duration
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38
Q

It determines how well the Treasury auction went?

  • Bid-cover ratio
  • Sealed-bid auction ratio
  • Stop-out yield.
  • Market-clearing yield
A
  • Bid-cover ratio
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39
Q

Comparing a zero-coupon bond with a 6% yield-to-maturity and a 6% coupon bond priced at par, if both are held to the same maturity date, an increase in the reinvestment rate will affect the true return

  • The coupon paying bond only
  • Both bonds equally
  • Both bonds but not equally
  • The zero-coupon bond only not
A

The coupon paying bond only

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40
Q

Which one of the following bonds has the shortest duration?

Zero-coupon. 10 year maturity
Zero-coupon. 13-year maturity
8% coupon, 10-year maturity
8% coupon, 13-year maturity

A

8% coupon, 10-year maturity

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41
Q

A fixed income manager wants to take advantage of a forecast decline in interest rates over the next several months. Which of the following combinations of maturity and coupon rate would most likely result in the largest increase in portfolio value?

Maturity 2015. Coupon Rate: 10%
Maturity 2015. Coupon Rate: 12%
Maturity 2030. Coupon Rate 10%
Maturity 2030 Coupon Rate 12%

A

Maturity 2030. Coupon Rate 10%

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42
Q

Which theory regarding the yield curve allows the derivation of forward rates directly from spot rates?

Pure expectations theory
Liquid preference theory
Market segmentation theory
Efficient market theory

A

Pure expectations theory

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43
Q

Which statement is TRUE according to pure expectations theory of yield curve shape?

-Lower inflation expectations result in a flat yield curve
-Higher inflation expectations result in a flat yield curve
-Lower short-term inflation expectations result in a humped yield curve
-Higher short-term inflation followed by lower long-term inflation results in a humped yield curve

A

-Higher short-term inflation followed by lower long-term inflation results in a humped yield curve

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44
Q

Philip Morris has issued bonds that pay interest semiannually with the attached characteristics. Identify the direction of change in modified duration if the coupon of the bond were 4%, not 8%.

may table

Increase
Decrease
No change
Cannot be determined with the information given

A

Increase

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45
Q

If a trader expects a flatter yield curve, he/she expects to profit from the move by going ___ short- end bonds and going ___long-end bonds.

long, short
long, long
short, long
short, short

A

short, long

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46
Q

Which of the following accurately states the difference between modified convexity and effective convexity?

  • When bonds with embedded options are in the money, modified convexity should be used.
  • When bonds with options are out of the money by a significant amount, then modified convexity and effective convexity will be equal, and either one can be used to measure a bond’s interest rate risk.
  • Modified convexity includes the impact of embedded options on the price of the bond, while effective convexity ignores the effect of embedded options.
  • When bonds with embedded options are at the money, modified convexity should be use
A

When bonds with options are out of the money by a significant amount, then modified convexity and effective convexity will be equal, and either one can be used to measure a bond’s interest rate risk.

47
Q

Dealers are known to be as:

  • Market Traders
  • Street
  • Price Maker
  • Price Taker
A
  • Price Maker
48
Q

Which of the following is NOT TRUE about a government security with ISIN of PIBD2031G171?

  • It was issued in the month of July
  • Matures in 2031
  • It is originally a 17-year security
  • It is a Fixed Rate Treasury Note
A
  • It is originally a 17-year security
49
Q

With respect to the term structure of interest rates, the market segmentation theory holds that:

  • An increase in demand for long-term borrowings could lead to an inverted yield curve
  • Expectations about the future of short-term interest rates are the major determinants of the shape of the yield curve.
  • The yield curve reflects the maturity demands of financial institutions and investors.
  • The shape of the yield curve is independent of the relationship between long-and short-term interest rates
A
  • The yield curve reflects the maturity demands of financial institutions and investors.
50
Q

Given a 10-year time horizon, the reinvestment rate risk is LOWEST for a:

4-year, 5% coupon bond
8-year, 8% coupon bond
5-year, zero-coupon bond
9-year, zero-coupon bond

A

9-year, zero-coupon bond

51
Q

For a callable bond, yield-to-call is a more conservative measure of yield from the point of view of the investor, whenever:

  • The bond is trading for more than par but less than the call price
    ​​- The bond is priced at or above its call price
  • The bond is trading at less than par
  • None of the above
A

​​- The bond is priced at or above its call price

51
Q

Why do analysts sometimes separately measure the slope for different segments of the yield curve?

  • The 2-year note to 30-year bond segment disguises longer-term liquidity preferences.
  • Longer maturities tell analysts nothing about expectations for future interest rates
  • The 3-month bill to 2-year note maturity range disguises short-term liquidity preferences
  • Desire for liquidity may overshadow the true nature of a yield curve in very short maturities
A
  • Desire for liquidity may overshadow the true nature of a yield curve in very short maturities
51
Q

The zero volatility spread will be zero:

  • For any bond that is option-free
  • For an on-the-run Treasury bond
    ?
    ?
A
  • For an on-the-run Treasury bond
52
Q

Which of the following is true about government security benchmarks?

  • Fixed Rate Treasury Notes with remaining tenors falling within the parameters set for the 1-month, 3-month, 6 month or 1-year tenor may be used in calculating PDST-F given a special situation
  • For the tenors of 2-years and above, Fixed Rate Treasury Notes and Fixed Rate Treasury Bonds qualify as bellwether securities.
  • There are twelve tenor points on the yield curve for which yields will be set daily. This includes: 1Mo, 3Mo, 6Mo, 1Yr, 2Yr, 3Yr, 5Yr, 7yr, 10Yr, 15Yr, 20Yr, and 25Yr
    ​​- The latest issued security for a particular bond tenor cannot be assigned as bellwether security
A
  • Fixed Rate Treasury Notes with remaining tenors falling within the parameters set for the 1-month, 3-month, 6 month or 1-year tenor may be used in calculating PDST-F given a special situation
53
Q

Which of the following is TRUE with the U.S. Treasury auctions?

  • The US Treasury makes an equivalent allocation for bidders at the stop-out yield.
  • Uniform price auction appears to have a higher bid-cover ratio and a lower dispersion of winning bids.
  • Bidders face quantity uncertainty in both the uniform and discriminatory price auctions.
  • Bidders cannot diversify their bids.
A
  • Bidders face quantity uncertainty in both the uniform and discriminatory price auctions.
54
Q

If a U.S. investor is forecasting that the yield spread between U.S. Treasury bonds and U.S. corporate bonds is going to widen, which of the following is most likely to be TRUE?

  • The economy is going to expand
  • The economy is going to contract
  • There will be no change in the economy
  • The US. dollar will weaken
A
  • The economy is going to contract
54
Q

Which of the following measures is LOWEST for a currently callable bond?

Macaulay duration
Effective duration
Modified duration
Cannot be determined

A

Effective duration

55
Q

An analyst has noticed lately that the price of a particular bond has risen less when the yield falls by 0.1% than the price falls when rates increase by 0.1%. She could conclude that the bond:

  • Is an option-free bond
  • Negative convexity
    ?
    ?
A
  • Negative convexity
56
Q

Which one of the following is an Incorrect statement concerning duration:

  • The higher the yield-to-maturity, the greater the duration
  • The higher the coupon, the shorter the duration
  • The difference in duration is small between 2 bonds each maturing in more than 15 years.
  • For a zero coupon bond, duration is the same, or very close to, the bond’s term-to-maturity
A
  • The higher the yield-to-maturity, the greater the duration
57
Q

Which of the following is NOT TRUE about bullet and barbell securities?

  • A barbell portfolio benefits more from the reduction in yields
  • As yields go up, the PVBP of the barbell portfolio is always lower than that of the bullet portfolio.
  • When there is an unparallel shift in yields, the value of the barbell portfolio dominates the value of the bullet security
  • Butterfly trades are when an intermediate security is sold (bought) and two securities whose maturities straddle the intermediate maturity are bought (sold)
A

When there is an unparallel shift in yields, the value of the barbell portfolio dominates the value of the bullet security

58
Q

Assume an investor is in the 31 percent marginal tax bracket. She is considering the purchase of either a 7.5 percent corporate bond that is selling at par or a 5.25 percent tax-exempt municipal bond that is also selling at par. Given that two bonds are comparable in all respects except their treatments, the investor should buy the:

Municipal Bond since its taxable equivalent yield is 7.61%

A

Municipal Bond since its taxable equivalent yield is 7.61%

59
Q

If the yield-to-maturity of a bond increases, the price will:

Decrease
Increase
Change depending on reinvestment rate assumptions
Increase or decrease based on the call date

A

Decrease

60
Q

Which of the following is a characteristic of an option-free (straight) bond?

As interest rates decline, the duration and convexity of the bond will increase

A

As interest rates decline, the duration and convexity of the bond will increase

61
Q

Which of the following is NOT TRUE about the auction mechanisms for Treasury securities?

  • All auctions in the Treasury markets are sealed-bid auctions.
  • Only two types of auction mechanisms are used in the Treasury markets.
  • In a competitive bidding, bidders specify only the price at which they would like to buy.
  • In a non-competitive bidding, bidders specify only the amount that they would like to buy
A

In a competitive bidding, bidders specify only the price at which they would like to buy.

62
Q

What is the correct flow in the conduct of Treasury auctions?

  • Auction announcement, Bidding in sealed-bid auctions, Book-building in the when issued market, Auction results are announced, Securities issued and settled on issue date.
  • Auction announcement, Bidding in sealed-bid auctions, Book-building in the when issued market, Securities issued and settled on issue date, Auction results are announced.
  • Auction announcement, Book-building in the when issued market, Bidding in sealed-bid auctions, Auction results are announced, Securities issued and settled on issue date
  • Auction announcement, Book-building in the when issued market, Bidding in sealed-bid auctions, Securities issued and settled on issue date, Auction results are announced
A
  • Auction announcement, Book-building in the when issued market, Bidding in sealed-bid auctions, Auction results are announced, Securities issued and settled on issue date
63
Q

Which of the following tools is used most frequently by the U.S Federal Reserve bank (the Fed) to control the level of short-term interest rates?

  • Requiring balanced budget for the federal government
  • Bank reserve requirements
  • Verbal and moral suasion on banks
  • Open market operations
A
  • Open market operations
64
Q

A bond’s yield-to-maturity and current yield are equal when the bond is priced at?

Discount
Par
Premium
Par, but only if the yield curve is flat

A

Par

65
Q

Why is the price/yield profile of a callable bond less convex than that of an otherwise identical option-free bond? The price:

  • Increase is capped from above at or near the call price as the yield decreases.
  • Increase is capped from above at or near the call price as the required yield increases.
  • Decrease is limited from below at or near the call price as the required yield decreases.
  • Decrease is limited from below at or near the call price as the required yield increases.
A
  • Increase is capped from above at or near the call price as the yield decreases.
66
Q

Positive Convexity on a bond implies that:

  • The direction of change in yield is directly related to the change in price
  • Prices increase at a faster rate as yields drop, than they decrease as yield’s rise
  • Price changes are the same for both increases and decreases in yields
  • Prices increase and decrease at a faster rate than the change in yield
A

Prices increase at a faster rate as yields drop, than they decrease as yield’s rise

67
Q

Callable bonds exhibit:

A

High Rates → Positive Convexity
Low Rates → Negative Convexity

68
Q

You are estimating the interest rate risk of a 14 percent semiannual-pay coupon with 6 years to maturity. The bond is currently trading at par. Using a 25 basis point change in yield, the effective duration of the bond is closest to:

0.389
0.397
3.889
3.970

A

3.970

69
Q

Based on the current bond information below, what is the percentage change in the price of the 15-year bond if the yield immediately decreases by 75 basis points?

Bond facts
15-year straight bond
7.5% coupon
Existing yield of 7.25%

0.0707
-0.0643
-0.0707
0.0464

A

0.0707

70
Q

Given two bonds that are equivalent in all respects except tax status, the marginal tax rate that will make an investor indifferent between an 8.2 percent taxable bond and a 6.2 percent tax-exempt bond is closest to:

0.2439
0.7661
0.3704
0.4347

A

0.2439

71
Q

A bond currently sells at $925 and has a duration of 3.65. Compute the approximate percent price change of the bond for a 75 basis point decrease in rates.

0.0274
-0.0253
-0.0274
0.0253

A

0.0274

72
Q

Compute the yield to call for a 4% semi-annual bond due in 4 years and callable in 2 years at $100.50 assuming a current price of 104.

$2.18%
$2.19%
$3.05%
$3.04

A

$2.19%

73
Q

Based on the following information, compute the duration of the bond given the original rate of 4.2% where the price is 94

Interest Rate
4.0%
4.4%

Bond Price
95.0
93.5

A

4

74
Q

A callable bond has a 4% current yield, 7% yield-to-maturity, 5% yield-to-call, and 3% nominal yield. What is the yield-to-worst?

3%
4% -
5%
7%

A

5%

75
Q

A trader wants a duration-neutral position in US Treasury 2-year and 10-year notes. The trader wants a long position in the 2-year note (DV01 - 187.70) and a short position in the 10-year note (DVO1 - 812.84)

How much worth of 10-year notes should the trader position if the 2-year note value is set at $50MM?

$11.55MM
-$11.55MM
$216.53MM
-$216.53MM

A

-$11.55MM

76
Q

A Treasury is quoted at 97-17 and has a par value of $100,000. Which of the following is its quoted dollar priced?

97170
97531.25
100000
975312.5

A

97531.25

77
Q

An 8%, 15-year bond has a yield-to-maturity of 10% and a modified duration of 8.05 years. If the market yield changes by 25 basis points, how much of the change in the bond’s price will be due to duration?

1.85%
2.01%
3.27%
6.44%

A

2.01%

77
Q

Find the yield-to-maturity of a 20-year zero-coupon bond that is selling for $372.50 (use annual compounding and assume the issue has a maturity value of $1,000).

5.06%
8.82%
10.12%
13.45%

A

5.06%

78
Q

A 10% annual pay, 20-year bond of 1000 face value, is priced at 850.61 at 12% yield, if it paid interest semiannually rather than annually, but continued to be priced 850.61 the resulting yield-to-maturity would be:

More than 12%
Less than 12%
Equal to 12%
???

A

Equal to 12%

79
Q

The following are quotes for a U.S. Treasury bond. If the face value of the bond is $1,000, the price an investor should pay for the bond is closest to:

BID: 102 - ?
ASK: 102 - 5

A

1021.09375

80
Q

Assuming a bond has effective duration of 4.68 and effective convexity of 16.35. What is the percentage change in the price of the bond for a 65 basis point decline in interest rates?

-0.0311
0.1065
0.0311
-0.0297

A

0.0311

81
Q

Based upon the table, calculate the market’s expected yield on a 1-year security in 2 years (assuming annual compounding)

2.14%
6.17%
7.13%
14.26%

A

7.13%

82
Q

An analyst has determined that if market yields rise by 100 basis points, a certain high-grade corporate bond will have a convexity effect of 1.75 percent. Further she found that the total estimated percentage change in price for this bond should be -13.35 percent. Given this information, it follows that the bond’s percentage change in price to duration is:

-15.1%
-11.6%
15.10%
16.85%

A

-15.1%

83
Q

Assume the following corporate yield curve. If an on-the-run 3 year U.S. Treasury is yielding 6 percent, the relative yield spread on the 3-year corporate is:

0.1667
0.01167
0.1428
100bp

A
84
Q

Using annual compounding, the value of a 3-year zero-coupon, $1,000 par value at 8.39% YTM Would be:

$708
$785
$852
$948

A

$785

85
Q

The 4-year spot rate is 9.45 percent and the 3-year spot rate is 9.85 percent. What is the 1-year forward rate three years from today?
Select one:

0.40%
9.85%
8.258%
11.059%

A

8.258%

86
Q

Calculate the effective duration of a 15-year 8% coupon bond that is currently trading at par, assuming that a valuation model indicates a 20 basis point decline in yield causes the price to increase to $1.027, while a corresponding 20 basis point increase in rates causes
the price to decrease to 975
Select one:

2.6
13
68
6.5

A

13

87
Q

A municipal bond carries a coupon rate of 6.25% and is trading at par. To a taxpayer in the 34% tax bracket, this bond would provide a taxable equivalent yield of:

0.045
0.102
0.134
0.199

A

0.102

88
Q

If the YTM of a bond is 6% and the reinvestment rate is 4%, the true return will be:

Less than 4%
Between 4-6%
Equal to 6%
Greater than 6%

A

Between 4-6%

89
Q

Given the following information, compute the 1.5 year spot rate:

4.38%
4.51%
4.81%
4.90%

A

4.81%

90
Q

Based on semiannual compounding, what would the yield-to-maturity (VTM) be on a 15-year, zero-coupon, $1,000 par value bond that’s currently trading at $331.40?
Select one:

3.75%
5.151%
7.50%
7.64%

A

7.50%

91
Q

A bond has a convexity of 57.3. The convexity effect in the yield decreases by 110 basis points is closest to:
Select one:

-0.01673
-0.00693
0.00693
0.01673

A

0.00693

92
Q

A 6 percent coupon bond with semiannual coupons has a convexity of 60, sells for 80 percent of par, and is priced at a yield-to-maturity (YTM) of 8 percent. If the YTM increases to 95 percent, the predicted contribution to the percentage change in price, due to convexity, would be
Select one

1.08%
1.35%
2.48%
7.35%

A

1.35%

92
Q

An analyst gathered the following spot rates. The one-year forward rate two years from now is closest to:
Select one

-4.91%
5.17%
10.05%
15.74%

A

5.17%

93
Q

Given a 2-year spot rate of 4% and assuming the market expects a 3-year security two years from now to yield 5%, calculate the current 5-year spot rate
Select one:

2.30%
4.60%
9.20%
25.50%

A

4.60%

94
Q

For two bonds that are alike in all respects except credit risk, the yield ratio is 1.0833 If the yield on the higher yield bond is 6.5 percent, the lower yield bond yield is closest to:
Select one:

0.0833
0.055
0.0704
0.06

A

0.06

95
Q

Given the following bids for the benchmark 5-year FXTN. compute for the PDSTF rate for the 5 year tenor.
Select one

0.035
0.0355
0.0395
0.0345 -

A
96
Q

A bond priced at $102.5 has an effective duration of 4.5. If interest rates increase by 40 basis points, calculate the new price of the bond

101.8
100.66
98.2
104.35

A

100.66

97
Q

Suppose that you determine that the modified duration of a bond is 787. The percentage change in price using duration for a yield decrease of 110 basis points is closest to

-0.08657
-0.07155
0.07155
0.08657

A

0.08657

98
Q

Assume you’re looking at a bond that has an effective duration of 10.5 and a convexity of 97.3. Using both of these measures, the estimated percentage change in price for this bond, in response to a decline in yield of 200 basis points is closest to:

0.2295
0.1905
0.1711
0.2489

A

0.2489

99
Q

An analyst observes a bond with an annual coupon that’s being priced to yield 6.350 percent. What is this issue’s bond equivalent yield?
Select one:

a. 0.03175
b. 0.03126
c. 0.06252
d. 0.06172

A

c. 0.06252

100
Q

A 9-year bond has a yield-to-maturity of 10% and a modified duration of 6.54. If the market yield changes by 50 basis points. the bond’s expected price change is

3.27%
3.66%
5.00%
6.54%

A
101
Q

A 30-year 8% bond is purchased at par and held for 10 years. It is then sold at 98 for a YTM of 8.20% The reinvestment rate on the coupon is 10%. The true annualized return on the bond over the 10-year period is closest to
Select one.

8.00%
8.20%
8.56%
10.00%

A

8.56%

102
Q

You own $15 million face of the 4.65 percent semiannual-pay Portage Health Authority bonds. The bonds have exactly 17 years to maturity and are currently priced to yield 4.39 percent. Using the full valuation approach, the interest rate exposure (in percent of value) for this bond position given a 75 basis point increase in required yield is closest to:

-9.104%
-9.031%
-8.344%
-8.283%

A

-8.344%

103
Q

What is the taxable equivalent yield on a 20-year par value municipal bond that generates a tax-free bond yield of 5.75% if the marginal income tax rate for incremental income is 35% and the investor’s total tax rate as a percentage of total income is 28%

0.0799
0.0767
0.0885
0.0575

A

0.0885

104
Q

Given the following data, compute for the accrued interest due to a client when he sells back his FXTN

Face Value: 100,000
Coupon Rate: 10%, semi-annual paying
Day count convention: 30/360
Accrued Days: 67 days

930.56
1861.11
3722.22
1875.65

A

1861.11

105
Q

Given the following data, compute for the settlement amount of a client who wants to purchase an FXTN

1310933.89
1000000
1373333.33
1325890.74

A

1325890.74

106
Q

The 6-month Treasury bill spot rate is 4.0 percent, and the 1 year Treasury bill spot rate is 5.0 percent The implied 6-month forward rate 6 months from now is:

3.00%
4.50%
5.50%
6.00%

A

6.00%

107
Q

Zello Corporation’s $1,000 par value bond sells for $960, matures in five years, and has a 7% coupon rate paid semiannually. What is the bond’s current yield?
Select one:

7.10%
7.29%
8.00%
Insufficient information provided

A

7.29%

108
Q

Zello Corporation’s $1,000 par value bond sells for $960, matures in five years, and has a 7% coupon rate paid semiannually. What is the bond’s yield to maturity?

7.00%
7.33%
7.98%
8.14%

A

7.33%

109
Q

An analyst observes a Widget & Co 7.125 percent, 4-year, semiannual-pay bond trading at 102.347 percent of par (where par - $1.000) The bond is callable at Los in two years, and putable at 100 in two years. What is the bond’s current yield?

6.962%
7.500%
7.426%
7.328%

A

6.962%

110
Q

An analyst observes a Widget & Co. 7.125 percent, 4-year, semiannual-pay bond trading at 102.347 percent of par (where par - $1,000) The bond is callable at 101 in two years, and putable at 100 in two years. What is the bond’s yield to call?
Select one

3.167%
5.664%
6.334%
5.864%

A

5.864%

111
Q

A zero-coupon bond sells at 87 with a yield-to-maturity of 4.7% Two years later it is priced at 94 to yield 6.28%. The bond equivalent true return is closest to:
Select one:

3.91%
4.70%
6.28%
8.05%

A

4.70%

112
Q
A

FIXED INCOME2 (1 decks)

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