Question 1

The duration of a 2 year annual 10% bond that is selling for par is:

Accepted Answer

A)  2.00 years 
B)  1.00 years 
C)  1.91 years 
D)  2.09 years 
A)  2.00 years 
B)  1.00 years 
C)  1.91 years 
D)  2.09 years

Question 2

Calculate the duration of a 4-year $1,000 face value bond,which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%.

Accepted Answer

D = [80/(1.09 + 160/

Question 3

Duration of a pure discount bond:

Accepted Answer

A)  is equal to its half-life. 
B)  is less than a zero coupon bond. 
C)  is equal to the liabilities hedged. 
D)  equal to its maturity. 
A)  is equal to its half-life. 
B)  is less than a zero coupon bond. 
C)  is equal to the liabilities hedged. 
D)  equal to its maturity.

Question 4

A bond manager who wishes to hold the bond with the greatest potential volatility would wise to hold:

Accepted Answer

A)  short-term, high-coupon bonds. 
B)  long-term, low-coupon bonds. 
C)  long-term, zero-coupon bonds. 
D)  short-term, zero-coupon bonds. 
E)  short-term, low-coupon bonds. 
A)  short-term, high-coupon bonds. 
B)  long-term, low-coupon bonds. 
C)  long-term, zero-coupon bonds. 
D)  short-term, zero-coupon bonds. 
E)  short-term, low-coupon bonds.

Question 5

Interest rate and currency swaps allow one party to exchange a:

Accepted Answer

A)  floating interest rate or currency value for a fixed interest or value over the contract term. 
B)  fixed interest rate or currency value for a lower fixed value over the contract term. 
C)  floating interest rate or currency value for a lower floating value over the contract term. 
D)  a fixed interest rate position for a currency position over the contract term. 
A)  floating interest rate or currency value for a fixed interest or value over the contract term. 
B)  fixed interest rate or currency value for a lower fixed value over the contract term. 
C)  floating interest rate or currency value for a lower floating value over the contract term. 
D)  a fixed interest rate position for a currency position over the contract term.

Question 6

In the practical use of credit default swaps,there:

Accepted Answer

A)  is no organized exchange or template for the agreement. 
B)  is an organized exchange or template for the agreement. 
C)  are laws making them illegal in Canada. 
D)  are limits to the amount of borrowing of both parties. 
A)  is no organized exchange or template for the agreement. 
B)  is an organized exchange or template for the agreement. 
C)  are laws making them illegal in Canada. 
D)  are limits to the amount of borrowing of both parties.

Question 7

If a firm sells a floor at 6% this will:

Accepted Answer

A)  will pay the holder the LIBOR interest below the 6%. 
B)  pay the firm 6% on their purchase. 
C)  will pay the holder the LIBOR interest above 6%. 
D)  limit the amount of borrowing to 6% of assets. 
A)  will pay the holder the LIBOR interest below the 6%. 
B)  pay the firm 6% on their purchase. 
C)  will pay the holder the LIBOR interest above 6%. 
D)  limit the amount of borrowing to 6% of assets.

Question 8

Duration is a measure of:

Accepted Answer

A)  the yield to maturity of a bond. 
B)  the coupon yield of a bond. 
C)  the price of a bond. 
D)  the effective maturity of a bond. 
A)  the yield to maturity of a bond. 
B)  the coupon yield of a bond. 
C)  the price of a bond. 
D)  the effective maturity of a bond.

Question 9

Calculate the duration of a 4-year $1,000 face value bond,which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%.

Accepted Answer

A)  3.29 years 
B)  3.58 years 
C)  3.69 years 
D)  3.89 years 
E)  4.00 years 
A)  3.29 years 
B)  3.58 years 
C)  3.69 years 
D)  3.89 years 
E)  4.00 years

Exam 26: Derivatives and Hedging Risk

The duration of a 2 year annual 10% bond that is selling for par is:

Calculate the duration of a 4-year $1,000 face value bond,which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%.

Duration of a pure discount bond:

A bond manager who wishes to hold the bond with the greatest potential volatility would wise to hold:

Interest rate and currency swaps allow one party to exchange a:

In the practical use of credit default swaps,there:

If a firm sells a floor at 6% this will:

Duration is a measure of:

Calculate the duration of a 4-year $1,000 face value bond,which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%.

Introduction to Corporate Finance

Accounting Statements and Cash Flow

Financial Planning and Growth

Financial Markets and Net Present Value: First Principles of Finance

The Time Value of Money

How to Value Bonds and Stocks

Net Present Value and Other Investment Rules

Net Present Value and Capital Budgeting

Risk Analysis,real Options,and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk,return,and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Issuing Equity Securities to the Public

Long-Term Debt

Leasing

Options and Corporate Finance: Basic Concepts

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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