FIN 3723 Test 1 Homework 1 PDF

Preview

Summary

Alvaro Taboada Spring 2021...

Description

Homework 1 Friday, January 29, 2021

9:09 PM

YIELD CURVE FOR ZERO COUPON BONDS RATED AA

Matur ity

YTM

Matur ity

YTM

Matur ity

1 year

8.00 %

7 year

9.15 %

13 year

2 year

8.11 %

8 year

9.25 %

14 year

3 year

8.20 %

9 year

9.35 %

15 year

4 year

8.50 %

10 year

9.47 %

16 year

5 year

8.75 %

11 year

9.52 %

17 year

6 year

8.85 %

12 year

9.77 %

18 year

Assume that there are no liquidity premiums.

To the nearest basis point, what is the e zero coupon bond purchased six

• • • •

10.41 percent 10.05 percent 9.16 percent 10.56 percent

t rate on a four

urity

YTM 10.45 % 10.65 % 10.75 % 10.95 % 11.00 % 11.25 %

A

•

9.96 percent

YIELD CURVE FOR ZERO COUPON BONDS RATED AA

Matur ity

YTM

Matur ity

YTM

Matur ity

1 year

8.00 %

7 year

9.15 %

13 year

2 year

8.11 %

8 year

9.25 %

14 year

3 year

8.20 %

9 year

9.35 %

15 year

4 year

8.50 %

10 year

9.47 %

16 year

5 year

8.75 %

11 year

9.52 %

17 year

6 year

8.85 %

12 year

9.77 %

18 year

Assume that there are no liquidity premiums.

You just bought a 15-yea matu Xerox corporate bond rated AA with a 0 coupon You expect to sell the b s. Find the ex time of e (watch out for rounding error).

nt

YTM 10.45 % 10.65 % 10.75 % 10.95 % 11.00 % 11.25 %

e

Multiple Choice

• • • • •

13.92 percent 11.00 percent 8.85 percent 12.49 12.80 percent

Inv A pays 8 percent rs. 5 percent compound interest for 10 ye s. Both require an initial $10 investmen . The future value of A minus the future value of B is equal to ______________ (to the nearest penny).

Multiple Choice

• • • • •

$2,500.00 −$2,500.00 $1,643.32 $3,094.67

Duration is

Multiple Choice

Multiple Choice

• • • • •

the elasticity of a security's value to small coupon changes. he we

e time to maturity o

ows.

the time until the investor recovers the price of the bond in today's dollars. greater than maturity for deep discount bonds and less than maturity for premium bonds. the second derivative of the bond price formula with respect to the YTM.

A security has an expected return less than its required return. This security is

Multiple Choice

• • • • •

selling at a premium to par. selling at a discount to par. for more than its PV. selling for less than its PV. a zero coupon bond.

A 10-year annual payment corporate bond has a market price of $1,050. It pays annu interest of $1 and its required rate of return is 9 percent. By how much is the bond mispriced?

Multiple Choice

• • • • •

$0.00 Overpriced by $14.18 Overpriced by $9.32 Underpriced by $9.32

The duration of a bond with a 5% coupon rate is ______ than the duration of a simila bond with a 10% coupon rate. If the yield to maturity increases the bond’s duration ________.

Multiple Choice

• • • •

Longer; increases Longer; decreases Shorter; increases Shorter; decreases

If interest rates are expected to d op, which of the following bonds would you rather hold? Multiple Choice

• • • •

A 10-year, AAA rated zero-coupon bond A 5-year, AAA rated zero-coupon bond A 10-year, AAA rated 10% coupon bond A 5-year, AAA rated 10%-coupon bond

An annual payment bond with a $1,000 par has a 5 percent quoted coupon rate, a 6 percent promised YTM, and six years to maturity. What is the bond's duration?

Multiple Choice

• • • • •

5.31 years 5.25 years 4.76 years 4.16 years 3.19 years

If an N year security recovered the same percentage of its cost in PV terms each year, the duration would be

Multiple Choice

• • • • •

N. 0. sum N!/N2. None of these choices are correct.

A four-year maturity 0 perc nt coupon corporate bond with a required ra return of 12 percent has an annual duration of _______________ years. Multiple Choice

• • • • •

3.05 2.97 3.22 3.71 4.00

The yields on a one-, two-, and three-year Treasury securities are: 1-year: 0.246% 2-year: 0.609% 3-year:0.900% What is the implied one-year forward rate in two years (i.e. what is the expected yield on a one-year security purchased in two years)? Multiple Choice

• • • •

0.609% 1.485% 0.973% 1.000%

e of

The primary policy tool used by the Fed to meet its monetary policy goals is

Multiple Choice

• • • • •

changing the discount rate. changing reserve requirements. devaluing the currency. changing bank regulations. open

The Fed funds rate is the rate that

Multiple Choice

• • • • •

banks charge for loans to corporate customers. banks charge to lend foreign exchange to customers. the Federal Reserve charges on emergency loans to commercial banks. b

her on

ns of excess reser

banks charge securities dealers to finance their inventory.

The Fed offers three types of discount window loans. ______________ credit is offere to small institutions with demonstrable patterns of financing needs, _____________ credit is offered for short-term temporary funds outflows, and _____________ credit may be offered at a higher rate to troubled institutions with more severe liquidity problems.

Multiple Choice

• •

Seasonal; extended; adjustment Extended; adjustment; seasonal

d

Extended; adjustment; seasonal

• • •

Adjustment; extended; seasonal y; secondary Adjustment; seasonal; extended

A decrease in reserve requirements could lead to an

Multiple Choice

• • • • •

increase in bank lending. increase in the money supply. increase in the discount rate. increase

nding and an increase in the money supply.

increase in bank lending and an increase in the discount rate.

Bank A has an increase in deposits of $20 million dollars and all bank reserve requirements are 10 percent. Bank A loans out the full amount of the deposit increas that is allowed. This amount winds up deposited in Bank B. Bank B lends out the full amount possible as well and this amount winds up deposited in Bank C. What is the t increase in deposits resulting from these three banks?

Multiple Choice

• • • • •

$48.00 million $5

ion

$56.33 million $57.10 million $60.00 million

The Fed changes reserve requirements from 10 percent to 7 percent, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would b

tal...