Question 1

Bond stripping and bond reconstitution offer opportunities for ______, which can occur if the _________ is violated.

Accepted Answer

A) arbitrage; law of one price 
B) arbitrage; restrictive covenants 
C) huge losses; law of one price 
D) huge losses; restrictive covenants 
A) arbitrage; law of one price 
B) arbitrage; restrictive covenants 
C) huge losses; law of one price 
D) huge losses; restrictive covenants

Question 2

The yield curve is a component of

Accepted Answer

A) the Dow Jones Industrial Average. 
B) the consumer price index. 
C) the index of leading economic indicators. 
D) the producer price index. 
E) the inflation index. 
A) the Dow Jones Industrial Average. 
B) the consumer price index. 
C) the index of leading economic indicators. 
D) the producer price index. 
E) the inflation index.

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. 
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.

Question 4

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 
E) None of the options 
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 
E) None of the options

Question 5

Which of the following combinations will result in a sharply increasing yield curve

Accepted Answer

A) Increasing future expected short rates and increasing liquidity premiums 
B) Decreasing future expected short rates and increasing liquidity premiums 
C) Increasing future expected short rates and decreasing liquidity premiums 
D) Increasing future expected short rates and constant liquidity premiums 
E) Constant future expected short rates and increasing liquidity premiums 
A) Increasing future expected short rates and increasing liquidity premiums 
B) Decreasing future expected short rates and increasing liquidity premiums 
C) Increasing future expected short rates and decreasing liquidity premiums 
D) Increasing future expected short rates and constant liquidity premiums 
E) Constant future expected short rates and increasing liquidity premiums

Question 6

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000.   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) $1,141.92 
E) None of the options 
A) $742.09 
B) $1,222.09 
C) $1,000.00 
D) $1,141.92 
E) None of the options

Question 7

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

Accepted Answer

A) arbitrage would probably occur. 
B) arbitrage would probably not occur. 
C) the FED would adjust interest rates. 
D) None of the options 
A) arbitrage would probably occur. 
B) arbitrage would probably not occur. 
C) the FED would adjust interest rates. 
D) None of the options

Question 8

Investors can use publicly available financial data to determine which of the following
I. The shape of the yield curve
II. Expected future short-term rates (if liquidity premiums are ignored)
III. The direction the Dow indexes are heading
IV. The actions to be taken by the Federal Reserve

Accepted Answer

A) I and II 
B) I and III 
C) I, II, and III 
D) I, III, and IV 
E) I, II, III, and IV 
A) I and II 
B) I and III 
C) I, II, and III 
D) I, III, and IV 
E) I, II, III, and IV

Question 9

An inverted yield curve implies that

Accepted Answer

A) long-term interest rates are lower than short-term interest rates. 
B) long-term interest rates are higher than short-term interest rates. 
C) long-term interest rates are the same as short-term interest rates. 
D) intermediate term interest rates are higher than either short- or long-term interest rates. 
E) None of the options 
A) long-term interest rates are lower than short-term interest rates. 
B) long-term interest rates are higher than short-term interest rates. 
C) long-term interest rates are the same as short-term interest rates. 
D) intermediate term interest rates are higher than either short- or long-term interest rates. 
E) None of the options

Bond stripping and bond reconstitution offer opportunities for , which can occur if the ___ is violated.

The yield curve is a component of

The value of a Treasury bond should

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

Which of the following combinations will result in a sharply increasing yield curve

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. What is the price of a 4-year maturity bond with a 12% coupon rate paid annually (Par value = $1,000.)

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

Investors can use publicly available financial data to determine which of the following I. The shape of the yield curve II. Expected future short-term rates (if liquidity premiums are ignored) III. The direction the Dow indexes are heading IV. The actions to be taken by the Federal Reserve

An inverted yield curve implies that

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 15: The Term Structure of Interest Rates

Bond stripping and bond reconstitution offer opportunities for ______, which can occur if the _________ is violated.

The yield curve is a component of

The value of a Treasury bond should

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

Which of the following combinations will result in a sharply increasing yield curve

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. What is the price of a 4-year maturity bond with a 12% coupon rate paid annually (Par value = $1,000.)

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

Investors can use publicly available financial data to determine which of the following I. The shape of the yield curve II. Expected future short-term rates (if liquidity premiums are ignored) III. The direction the Dow indexes are heading IV. The actions to be taken by the Federal Reserve

An inverted yield curve implies that

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Bond stripping and bond reconstitution offer opportunities for , which can occur if the ___ is violated.