# Hull_OFOD9e_MultipleChoice_Questions_Only_Ch04.doc | Yield (Finance) | Bonds (Finance)

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Hull: Options, Futures and Other Derivatives, Ninth Edition Chapter 4: Interest Rates Multiple Choice Test Bank: Questions 1. The compounding frequency for an interest rate defines A. The frequency with which interest is paid B. A unit of measurement for the interest rate C. The relationship between the annual interest rate and the monthly interest rate D. None of the above 2. An interest rate is 6% per annum with annual compounding. What is the equivalent rate with continuous compounding? A. 5.
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Hull: Options, Futures and Other Derivatives, Ninth EditionChapter 4: Interest RatesMultiple Choice Test Ban: !uestions 1.The compounding frequency for an interest rate denesA.The frequency with which interest is paidB.A unit of measurement for the interest rateC.The relationship between the annual interest rate and the monthly interest rate D.None of the aboe!.An interest rate is # per annum with annual compounding. \$hat is the equialent rate with continuous compounding%A.&.'(#B. .!1#C.&.)*# D. .1)#*.An interest rate is &# per annum with continuous compounding. \$hat is the equialent rate with semiannual compounding%A.&.+ #B.&.+*#C.,.('# D.,.(,#,.An interest rate is 1!# per annum with semiannual compounding. \$hat is the equialent rate with quarterly compounding%A.11.)*#B.11. #C.11.''# D.11.(!#&.The two-year ero rate is # and the three year ero rate is .&#. \$hat is theforward rate for the third year% All rates are continuously compounded.A. .'&#B.'.+#C.'.!&# D.'.&# .The si/-month ero rate is )# per annum with semiannual compounding. Theprice of a one-year bond that proides a coupon of # per annum semiannually is ('. \$hat is the one-year continuously compounded ero rate%A.).+!#B.).&!#  C.(.+!#D.(.&!#'.The yield cure is 0at at # per annum. \$hat is the alue of an 2A where the holder receies interest at the rate of )# per annum for a si/-month period on a principal of 314+++ starting in two years% All rates are compounded semiannually.A.3(.1!B.3(.+!C.3).))D.3). *).5nder liquidity preference theory4 which of the following is always true% A.The forward rate is higher than the spot rate when both hae the samematurity.B.orward rates are unbiased predictors of e/pected future spot rates. C.The spot rate for a certain maturity is higher than the par yield for that maturity.D.orward rates are higher than e/pected future spot rates. (.The ero cure is upward sloping. Dene 6 as the 1-year par yield4 7 as the 1-year ero rate and 8 as the forward rate for the period between 1 and 1.& year. \$hich of the following is true% A.6 is less than 7 which is less than 8B.7 is less than 6 which is less than 8C.6 is less than 8 which is less than 7 D.8 is less than 7 which is less than 61+.\$hich of the following is true of the fed funds rateA.9t is the same as the Treasury rateB.9t is an oernight interban: rateC.9t is a rate for which collateral is postedD.9t is a type of repo rate11.The modied duration of a bond portfolio worth 31 million is & years. By appro/imately how much does the alue of the portfolio change if all yields increase by & basis points%A.9ncrease of 3!4&++B.Decrease of 3!4&++C.9ncrease of 3!&4+++D.Decrease of 3!&4+++1!.A company inests 314+++ in a e-year ero-coupon bond and 3,4+++ in a ten-year ero-coupon bond. \$hat is the duration of the portfolio% A. years  B. ' yearsC. ) yearsD. ( years1*.\$hich of the following is true of ;9B<2A.The ;9B<2 rate is free of credit ris:B.A ;9B<2 rate is lower than the Treasury rate when the two hae the same maturity C.9t is a rate used when borrowing and lending ta:es place between ban:sD.9t is sub=ect to faorable ta/ treatment in the 5.>.1,.\$hich of following describes forward rates%A.9nterest rates implied by current ero rates for future periods of timeB.9nterest rate earned on an inestment that starts today and last for n-years in the future without couponsC.The coupon rate that causes a bond price to equal its par ?or principal@alueD.A single discount rate that gies the alue of a bond equal to itsmar:et price when applied to all cash 0ows1&.\$hich of the following is N<T a theory of the term structureA./pectations theoryB.ar:et segmentation theoryC.;iquidity preference theoryD.aturity preference theory 1 .A repo rate isA.An uncollateralied rateB.A rate where the credit ris: is relatie highC.The rate implicit in a transaction where securities are sold and bought bac: later at a higher priceD.None of the aboe1'.Bootstrapping inolesA.Calculating the yield on a bondB.\$or:ing from short maturity instruments to longer maturity instruments determining ero rates at each stepC.\$or:ing from long maturity instruments to shorter maturity instruments determining ero rates at each stepD.The calculation of par yields  1).The ero cure is downward sloping. Dene 6 as the 1-year par yield4 7 as the1-year ero rate and 8 as the forward rate for the period between 1 and 1.& year. \$hich of the following is true% A.6 is less than 7 which is less than 8B.7 is less than 6 which is less than 8C.6 is less than 8 which is less than 7 D.8 is less than 7 which is less than 61(.\$hich of the following is true%A.\$hen interest rates in the economy increase4 all bond prices increaseB.As its coupon increases4 a bonds price decreasesC.;onger maturity bonds are always worth more that shorter maturity bonds when the coupon rates are the sameD.None of the aboe!+. The si/ month and one-year rates are *# and ,# per annum with semiannual compounding. \$hich of the following is closest to the one-year par yield e/pressed with semiannual compounding% A.*.((#B.*.()#C.*.('#D.*.( #
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