Exam 24: Term Structure of Interest Rates: Concepts

The "rule of 72" states that invested money doubles in value if the product of the interest rate (in percentage form) and time invested (in years) equals 72. Assuming continuous compounding, at least what must the product be for money to triple?

As the ytm of a bond rises, which of the following is most valid?

Under a semi-annual compounding convention, the present value of a $n$ -period cashflow using its ytm $y$ is given by $P = C / ( 1 + y / 2 ) ^ { n }$ . Which of the following is an equivalent way of expressing the same present value?

If zero rates (i.e., discount rates) are the same for all maturities and remain the same over the next year, the price of a zero-coupon bond that matures ten years from today will:

Assuming annual compounding, the prices of a one-year 4% coupon bond and a two-year 5% coupon bond are $101 and $99, respectively. The forward rate between one and two years is:

Assuming annual compounding and annual coupon payments, the prices of a one-year 4% coupon bond and a two-year 5% coupon bond are $101 and $99, respectively. The zero-coupon rate for two years is:

The prices of a one-year 4% coupon bond, a two-year 5% coupon bond, and a three-year 6% coupon bond are $101, $100 and $99, respectively. Coupons are paid annually. What is the price of a bond that pays $37 each year?

The one-year discount factor today is 0.95. You buy a one-year zero-coupon bond today and hold it until maturity. Suppose that at maturity, the one-year discount factor is 0.92. The return you realize, expressed in simple terms, is:

If the ytm curve is upward sloping then which of the following orderings of yield, zero-coupon rates (zcr) and forward rates (fwr) is most valid?

If the ytm of a bond falls, which of the following is most valid?

The price of a three-year 5% coupon Treasury bond in the Wall Street Journal is quoted at 101-20. The yield-to-maturity of the bond is

Which of the following is not a typical property of a discount function $d ( t )$ ?

Today's forward rate $f \left( t _ { 1 } , t _ { 2 } \right)$ for a period $\left( t _ { 1 } , t _ { 2 } \right)$ in the future ( $t _ { 1 } < t _ { 2 }$ ) is

The zero-coupon rate (zcr) is

If zero rates (also known as discount rates) are positive for any maturity, the discount function $d ( t )$ , which gives the present value of a dollar receivable at time $t$ in the future,

The yield-to-maturity (ytm) is the

Find the yield-to-maturity of a 5% two-year bond that has a price of $102. Assume coupons are paid quarterly.

The 6-months risk-free zero rate is 2.84%, and the one-year zero rate is 3.17%. Assuming no-arbitrage, the yield-to-maturity on a $1,000 par of a one-year, 12% Treasury bond, that pays $60 after 6 months and $1060 after one-year, must be

Assume that the risk-free zero rates are increasing with maturity (That is, the 6-months zero rate is lower than the one-year zero rate, which is lower than the two-year zero rate, etc). It must be that:

You are to receive a cash-flow of $40 after three years. If the ytm of this cash-flow is 6%, what is its present value? (Assume a semi-annual basis for compounding and discounting.)