(c) The fact that delivery can be made any time during the delivery month

(d) The interest rate used in the calculation of the conversion factor

6. A trader enters into a long position in one Eurodollar futures contract.

How much does the trader gain when the futures price quote increases by 6
basis points?
______

7. A company invests $1,000 in a five-year zero-coupon bond and $4,000 in

a ten-year zero-coupon bond. What is the duration of the portfolio? _ _ _ _
__

8. The modified duration of a bond portfolio worth $1 million is 5 years. By

m
approximately how much does the value of the portfolio change if all

e r as
yields increase by 5 basis points? Indicate whether the dollar amount you

co
calculate is an increase or a decrease _ _ _ _ _ _ _ _ _ _ _ _ _

eH w
o.
rs e
ou urc

9. A portfolio is worth $24,000,000. The futures price for a Treasury note

o

futures contract is 110 and each contract is for the delivery of bonds with a
aC s
v i y re

face value of $100,000. On the delivery date the duration of the bond that
is expected to be cheapest to deliver is 6 years and the duration of the
portfolio will be 5.5 years. How many contracts are necessary for hedging
ed d

the portfolio? _______

ar stu
sh is

10. Which of the following is true (circle one)

Th

(a) The futures rates calculated from a Eurodollar futures quote is always
less than the corresponding forward rate
(b) The futures rates calculated from a Eurodollar futures quote is always
greater than the corresponding forward rate
(c) The futures rates calculated from a Eurodollar futures quote should
equal the corresponding forward rate
(d) The futures rates calculated from a Eurodollar futures quote is
sometimes greater than and sometimes less than the corresponding
forward rate

Test Bank: Chapter 7

https://www.coursehero.com/file/13803302/Quiz-3/
 Swaps

28. Suppose that the yield curve is flat at 5% per annum with continuous
compounding. A swap with a notional principal of $100 million in which 6%
is received and six-month LIBOR is paid will last another 15 months.
Payments are exchanged every six months. The six-month LIBOR rate at the
last reset date (three months ago) was 7%. Answer in millions of dollars to
two decimal places.

(i) What is the value of the fixed-rate bond underlying the swap? _____
_

m
(ii) What is the value of the floating-rate bond underlying the swap? ___

e r as
___

co
eH w
(iii) What is the value of the payment that will be exchanged in 3 months? _

o.
_____
rs e
ou urc
(iv) What is the value of the payment that will be exchanged in 9 months? _
_____
o

(v) What is the value of the payment that will be exchanged in 15 months? _
aC s
v i y re

_____

(vi) What is the value of the swap? ______

ed d

29. A company can invest funds for five years at LIBOR minus 30 basis points.
ar stu

The five-year swap rate is 3%. What fixed rate of interest can the company
earn? Ignore day count issues _ _ _ _ _ _
sh is

30. Which of the following is true (circle one)

Th

(a) Principals are not usually exchanged in a currency swap

(b) The principal amounts usually flow in the opposite direction to interest
payments at the beginning of a currency swap and in the same direction as
interest payments at the end of the swap.
(c) The principal amounts usually flow in the same direction as interest
payments at the beginning of a currency swap and in the opposite direction
to interest payments at the end of the swap.
(d) Principals are not usually specified in a currency swap

31. Suppose you enter into an interest rate swap where you are receiving floating
and paying fixed. Which two of the following is true? (circle two)
(a) Your credit risk is greater when the term structure is upward sloping than

https://www.coursehero.com/file/13803302/Quiz-3/
 when it is downward sloping.
(b) Your credit risk is greater when the term structure is downward sloping
than when it is upward sloping.
(c) Your credit risk exposure increases when interest rates decline
unexpectedly.
(d) Your credit risk exposure increases when interest rates increase
unexpectedly.

Test Bank: Chapter 8

Securitization and the Credit Crisis of 2007

1. Suppose that ABSs are created from portfolios of subprime mortgages with
the following allocation of the principal to tranches: senior 75%,

m
mezzanine 20%, and equity 5%. An ABS CDO is then created from the

e r as
mezzanine tranches with the same allocation of principal. Losses on the

co
eH w
mortgage portfolio prove to be 16%. What, as a percent of tranche principal,

o.
are losses on
rs e
ou urc
(i) The equity tranche of the ABS ____ __

(ii) The mezzanine tranche of the ABS ______

o
aC s

(iii)The senior tranche of the ABS __ ____

v i y re

(iv) The equity tranche of the ABS CDO _ _ _ _ _ _

ed d

(v) The mezzanine tranche of the ABS CDO ______

ar stu

(vi) The senior tranche of the ABS CDO ______

sh is

2. Which of the following would tend to lead to an increase in house prices

Th

(Circle two)
(a) A reduction in interest rates
(b) Regulators specifying a maximum level for the loan-to-value ratio on
mortgages
(c) Banks reducing the minimum FICO that borrowers are required to have
(d) An increase in foreclosures

3. When a mortgage is non-recourse (Circle one)

(a) The house buyer can lose all possessions if he or she is unable to make
payments
(b) The purchaser has a free American style put option on the house
(c) The purchaser has a free European style put option on the house

https://www.coursehero.com/file/13803302/Quiz-3/
 (d) The lender is less likely to lose money on the mortgage

4. Which of the following is not true (Circle one)

(a) The bonus structure at banks is liable to lead to short term horizons for
decision making
(b) A portfolio of BBB tranches created from mortgages has a loss probability
distribution similar to a portfolio of BBB bonds
(c) The term “agency costs” describes the situation where the incentives of
two parties in a business relationship are not perfectly aligned
(d) Correlations tend to increase in stressed market conditions

Test Bank: Chapter 9

Mechanics of Options Markets

m
e r as
co
eH w
1. Consider an exchange traded put option to sell 100 shares for $20. Give (a)

o.
the strike price and (b) the number of shares that can be sold after
rs e
ou urc
(i) A 5 for 1 stock split (a) _ _ _ _ _ _ (b) _ _ _ _ _ _
o
aC s

(ii) A 25% stock dividend (a) _ _ _ _ _ _ (b) _ _ _ _ _ _

v i y re

(iii) A $5 cash dividend (a) _ _ _ _ _ _ (b) _ _ _ _ _ _

ed d
ar stu

2. A trader writes two naked put option contracts. The option price is $3, the
sh is

strike price is $ 40 and the stock price is $42. What is the initial margin? _
Th

_____

3. Which of the following lead to IBM issuing more shares (circle three)
(a) Some executive stock options are exercised
(b) Some exchange-traded put options are exercised
(c) Some exchange-traded call options are exercised
(d) Some warrants on IBM are exercised
(e) Some of IBM’s convertible debt is converted to equity.

Test Bank: Chapter 10

https://www.coursehero.com/file/13803302/Quiz-3/

Powered by TCPDF (www.tcpdf.org)