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 
E) B and D 
A) arbitrage; Law of One Price 
B) arbitrage; restrictive covenants 
C) huge losses; Law of One Price 
D) huge losses; restrictive covenants 
E) B and D

Question 2

An upward sloping yield curve

Accepted Answer

A) may be an indication that interest rates are expected to increase. 
B) may incorporate a liquidity premium. 
C) may reflect the confounding of the liquidity premium with interest rate expectations. 
D) all of the above. 
E) none of the above. 
A) may be an indication that interest rates are expected to increase. 
B) may incorporate a liquidity premium. 
C) may reflect the confounding of the liquidity premium with interest rate expectations. 
D) all of the above. 
E) none of the above.

Question 3

$$\begin{array} { l | l } 
\hline \text { Year } & \text { 1-Year Forward Rate } \
\hline 1 & 4.6 \% \
\hline 2 & 4.9 \% \
\hline 3 & 5.2 \% \
\hline 4 & 5.5 \% \
\hline 5 & 5.8 \% \
\hline
\end{array}$$
-What should the purchase price of a 2-year zero coupon bond be if it is purchased today and has face value of $1,000?

Accepted Answer

A) $966.87 
B) $911.37 
C) $950.21 
D) $956.02 
E) $945.51 
A) $966.87 
B) $911.37 
C) $950.21 
D) $956.02 
E) $945.51

Question 4

What is the price of a 2-year maturity bond with a 5% coupon rate paid annually? (Par value = $1,000)

Accepted Answer

A) $1,092.97 
B) $1,054.24 
C) $1,028.51 
D) $1,073.34 
E) none of the above 
A) $1,092.97 
B) $1,054.24 
C) $1,028.51 
D) $1,073.34 
E) none of the above

Question 5

If you have just purchased a 4-year zero coupon bond,what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same? (Par value of the bond = $1,000)

Accepted Answer

A) 5% 
B) 3% 
C) 9% 
D) 10% 
E) none of the above 
A) 5% 
B) 3% 
C) 9% 
D) 10% 
E) none of the above

Question 6

Although the expectations of increases in future interest rates can result in an upward sloping yield curve; an upward sloping yield curve does not in and of itself imply the expectations of higher future interest rates.Explain.

Accepted Answer

The effects of possible liquidity premiu

Question 7

______ can occur if _____.

Accepted Answer

A) arbitrage; the Law of One Price is not violated 
B) arbitrage; the Law of One Price is violated 
C) riskless economic profit; the Law of One Price is not violated 
D) riskless economic profit; the Law of One Price is violated 
E) B and D 
A) arbitrage; the Law of One Price is not violated 
B) arbitrage; the Law of One Price is violated 
C) riskless economic profit; the Law of One Price is not violated 
D) riskless economic profit; the Law of One Price is violated 
E) B and D

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

An upward sloping yield curve

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 5.8\% -What should the purchase price of a 2-year zero coupon bond be if it is purchased today and has face value of $1,000?

What is the price of a 2-year maturity bond with a 5% coupon rate paid annually? (Par value = $1,000)

If you have just purchased a 4-year zero coupon bond,what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same? (Par value of the bond = $1,000)

Although the expectations of increases in future interest rates can result in an upward sloping yield curve; an upward sloping yield curve does not in and of itself imply the expectations of higher future interest rates.Explain.

__ can occur if _.

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

Exam 15: The Term Structure of Interest Rates

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

An upward sloping yield curve

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 5.8\% -What should the purchase price of a 2-year zero coupon bond be if it is purchased today and has face value of $1,000?

What is the price of a 2-year maturity bond with a 5% coupon rate paid annually? (Par value = $1,000)

If you have just purchased a 4-year zero coupon bond,what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same? (Par value of the bond = $1,000)

Although the expectations of increases in future interest rates can result in an upward sloping yield curve; an upward sloping yield curve does not in and of itself imply the expectations of higher future interest rates.Explain.

______ can occur if _____.

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

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

__ can occur if _.