Question 1

Par value $1,000 Time to Maturity 20 Years  Coupon10% (paid annually)  Current price $850Yield to Maturity 12%\begin{array}{ll}  	ext { Par value } &\$1,000\ 	ext { Time to Maturity } &20 	ext { Years } \ 	ext {  Coupon} &10 \%  	ext { (paid annually) }\ 	ext { Current price } &\$850\ 	ext {Yield to Maturity  } &12\%\\end{array} Par value  Time to Maturity  Coupon Current price Yield to Maturity ​$1,00020 Years 10% (paid annually) $85012%​ 
 Given the bond described above, if interest were paid semi-annually (rather than annually) , and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be

Accepted Answer

A)   less than 12%.
B)   more than 12%.
C)   12%.
D)   Cannot be determined.
E)   None of the options are correct. F) A) and E)
G) All of the above

Question 2

Year  1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}	ext { Year } & 	ext { 1-Year Forward Rate } \1 & 4.6\% \2 &4.9\% \3 & 5.2\% \4 & 5.5\% \5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​ 
 What is the yield to maturity of a 5-year bond?

Accepted Answer

A)   4.6%
B)   4.9%
C)   5.2%
D)   5.5%
E)   5.8% F) A) and B)
G) C) and D)

Question 3

The value of a Treasury bond should

Accepted Answer

A)   be equal to the sum of the value of STRIPS created from it.
B)   be less than the sum of the value of STRIPS created from it.
C)   be greater than the sum of the value of STRIPS created from it.
D)   All of the options are correct.E) C) and D)
F) All of the above

Question 4

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000.   Maturity  Price  (Years)  1$943.402881.683808.884742.05\begin{array} { c c } 	ext { Maturity } & 	ext { Price } \	ext { (Years)  } & \1 & \$ 943.40 \2 & 881.68 \3 & 808.88 \4 & 742.05\end{array} Maturity  (Years)  1234​ Price $943.40881.68808.88742.05​  What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par value = $1,000.)

Accepted Answer

A)   $742.09
B)   $1,222.09
C)   $1,000.00
D)   $1,141.84
E)   None of the options are correct. F) C) and E)
G) None of the above

Question 5

Suppose that all investors expect that interest rates for the 4 years will be as follows:   Year  Forward Interest Rate 04% (today)  15%26%37%\begin{array}{ll}	ext { Year } &	ext { Forward Interest Rate }\ 0 & 4\% 	ext { (today)  } \1 & 5\% \2 & 6\%\3&7\%\end{array} Year 0123​ Forward Interest Rate 4% (today)  5%6%7%​   What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

Accepted Answer

A)   $1,092
B)   $1,054
C)   $986
D)   $1,103
E)   None of the options are correct. F) B) and D)
G) C) and D)

Question 6

Forward rates ____________ future short rates because ____________.

Accepted Answer

A)   are equal to; they are both extracted from yields to maturity
B)   are equal to; they are perfect forecasts
C)   differ from; they are imperfect forecasts
D)   differ from; forward rates are estimated from dealer quotes while future short rates are extracted from yields to maturity
E)   are equal to; although they are estimated from different sources, they both are used by traders to make purchase decisionsF) C) and D)
G) B) and E)

Question 7

When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the

Accepted Answer

A)   coupon rate.
B)   current yield.
C)   yield to maturity at the time of the investment.
D)   prevailing yield to maturity at the time interest payments are received.
E)   the average yield to maturity throughout the investment period.F) B) and E)
G) A) and D)

Question 8

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000.   Maturity  Price  (Years)  1$925.152862.573788.664711.00\begin{array}{cc}	ext { Maturity } & 	ext { Price } \	ext { (Years)  } & \1 & \$ 925.15 \2 & 862.57 \3 & 788.66 \4 & 711.00\end{array} Maturity  (Years)  1234​ Price $925.15862.57788.66711.00​

You have purchased a 4-year maturity bond with a 9% coupon rate paid annually. The bond has a par value of $1,000. What would the price of the bond be one year from now if the implied forward rates stay the same?

Accepted Answer

A)   $995.63
B)   $1,108.88
C)   $1,000.00
D)   $1,042.78 E) B) and C)
F) None of the above

Question 9

Year  1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}	ext { Year } & 	ext { 1-Year Forward Rate } \1 & 4.6\% \2 &4.9\% \3 & 5.2\% \4 & 5.5\% \5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​  What should the purchase price of a 1-year zero-coupon bond be if it is purchased today and has face value of $1,000?

Accepted Answer

A)   $966.37
B)   $912.87
C)   $950.21
D)   $956.02
E)   $945.51 F) A) and E)
G) All of the above D

Question 10

If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows) , you could

Accepted Answer

A)   profit by buying the stripped cash flows and reconstituting the bond.
B)   not profit by buying the stripped cash flows and reconstituting the bond.
C)   profit by buying the bond and creating STRIPS.
D)   not profit by buying the stripped cash flows and reconstituting the bond and profit by buying the bond and creating STRIPS.
E)   None of the options are correct.F) B) and C)
G) A) and B) A

Question 11

Year  1 Year Forward Rate 14.5%25.2%35.9%46.3%56.8%67.0%\begin{array}{cc}	ext { Year } & 	ext { 1 Year Forward Rate } \1 & 4.5\% \2 & 5.2\% \3 & 5.9\% \4 & 6.3\% \5 & 6.8 \% \6 & 7.0\%\end{array} Year 123456​ 1 Year Forward Rate 4.5%5.2%5.9%6.3%6.8%7.0%​ 
 What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

Accepted Answer

A)   $897.61
B)   $888.33
C)   $883.32
D)   $893.36
E)   $871.80 F) A) and B)
G) A) and E)

Question 12

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000.   Maturity  Price  (Years)  1$943.402881.683808.884742.05\begin{array} { c c } 	ext { Maturity } & 	ext { Price } \	ext { (Years)  } & \1 & \$ 943.40 \2 & 881.68 \3 & 808.88 \4 & 742.05\end{array} Maturity  (Years)  1234​ Price $943.40881.68808.88742.05​  What is the yield to maturity on a 3-year zero-coupon bond?

Accepted Answer

A)   6.37%
B)   9.00%
C)   7.33%
D)   10.00%
E)   None of the options are correct. F) C) and E)
G) A) and D)

Question 13

The most recently issued Treasury securities are called

Accepted Answer

A)   on the run.
B)   off the run.
C)   on the market.
D)   off the market.
E)   None of the options are correct.F) A) and B)
G) B) and E)

Question 14

Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2, what must be the forward rate in year 3?

Accepted Answer

A)   7.2%
B)   8.6%
C)   8.5%
D)   6.9%E) C) and D)
F) B) and D)

Question 15

Year  1-Year Forward Rate 15%25.5%36.0%46.5%57.0%\begin{array}{cc}	ext { Year } & 	ext { 1-Year Forward Rate } \1 & 5\% \2 & 5.5\% \3 & 6.0\% \4 & 6.5\% \5 & 7.0\%\end{array} Year 12345​ 1-Year Forward Rate 5%5.5%6.0%6.5%7.0%​ 
 What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

Accepted Answer

A)   $877.54
B)   $888.33
C)   $883.32
D)   $894.21
E)   $871.80 F) B) and D)
G) B) and C) D

Question 16

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows) , you could

Accepted Answer

A)   profit by buying the stripped cash flows and reconstituting the bond.
B)   not profit by buying the stripped cash flows and reconstituting the bond.
C)   profit by buying the bond and creating STRIPS.
D)   not profit by buying the stripped cash flows and reconstituting the bond and profit by buying the bond and creating STRIPS.
E)   None of the options are correct.F) A) and E)
G) B) and E)

Question 17

The expectations theory of the term structure of interest rates states that

Accepted Answer

A)   forward rates are determined by investors' expectations of future interest rates.
B)   forward rates exceed the expected future interest rates.
C)   yields on long- and short-maturity bonds are determined by the supply and demand for the securities.
D)   All of the options are correct.
E)   None of the options are correct.F) B) and E)
G) A) and B)

Question 18

Year  1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}	ext { Year } & 	ext { 1-Year Forward Rate } \1 & 4.6\% \2 &4.9\% \3 & 5.2\% \4 & 5.5\% \5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​ 
 What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?

Accepted Answer

A)   $776.14
B)   $721.15
C)   $779.54
D)   $756.02
E)   $766.32 F) C) and E)
G) C) and D)

Question 19

The pure yield curve can be estimated

Accepted Answer

A)   by using zero-coupon Treasuries.
B)   by using stripped Treasuries if each coupon is treated as a separate "zero."
C)   by using corporate bonds with different risk ratings.
D)   by estimating liquidity premiums for different maturities.
E)   by using zero-coupon Treasuries and by using stripped Treasuries if each coupon is treated as a separate "zero."F) A) and E)
G) C) and E)

Question 20

_____________________ are created from coupon paying treasuries, where the coupon and principal are separated.

Accepted Answer

A)   Stripped treasuries
B)   Forward rates
C)   A yield curve
D)   Futures contracts
E)   None of the options are correct.F) A) and E)
G) B) and E)

Exam 15: The Term Structure of Interest Rates

Correct Answer
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$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$ What is the yield to maturity of a 5-year bond?

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The value of a Treasury bond should

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Forward rates future short rates because .

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When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the

Correct Answer
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$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$ What should the purchase price of a 1-year zero-coupon bond be if it is purchased today and has face value of $1,000?

Correct Answer
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D

If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows) , you could

Correct Answer
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A

$\begin{array}{cc}\text { Year } & \text { 1 Year Forward Rate } \\1 & 4.5\% \\2 & 5.2\% \\3 & 5.9\% \\4 & 6.3\% \\5 & 6.8 \% \\6 & 7.0\%\end{array}$ What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

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The most recently issued Treasury securities are called

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Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2, what must be the forward rate in year 3?

Correct Answer
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$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 5\% \\2 & 5.5\% \\3 & 6.0\% \\4 & 6.5\% \\5 & 7.0\%\end{array}$ What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

Correct Answer
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D

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows) , you could

Correct Answer
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The expectations theory of the term structure of interest rates states that

Correct Answer
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$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$ What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?

Correct Answer
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The pure yield curve can be estimated

Correct Answer
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_____________________ are created from coupon paying treasuries, where the coupon and principal are separated.

Correct Answer
verified

Exam 15: The Term Structure of Interest Rates

Correct AnswerverifiedShow Answer

Year 1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​ What is the yield to maturity of a 5-year bond?

Correct AnswerverifiedShow Answer

The value of a Treasury bond should

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Forward rates ____________ future short rates because ____________.

Correct AnswerverifiedShow Answer

When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows) , you could

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most recently issued Treasury securities are called

Correct AnswerverifiedShow Answer

Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2, what must be the forward rate in year 3?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows) , you could

Correct AnswerverifiedShow Answer

The expectations theory of the term structure of interest rates states that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The pure yield curve can be estimated

Correct AnswerverifiedShow Answer

_____________________ are created from coupon paying treasuries, where the coupon and principal are separated.

Correct AnswerverifiedShow Answer

Correct Answer
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$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$ What is the yield to maturity of a 5-year bond?

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Forward rates future short rates because .

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D

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A

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D

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