Review Test Submission: Online quiz 2

1 of 2

FINS2624-Portfolio Mgmt - s1/2013

https://lms-blackboard.telt.unsw.edu.au/webapps/assessment/review/re...

Online quizzes

Online Quiz 2

Review Test Submission: Online quiz 2

Review Test Submission: Online quiz 2

User

David WANG

Submitted

27/03/13 20:46

Status

Completed

Score

100 out of 100 points

Instructions

Question 1

10 out of 10 points

Suppose you observe the following two bonds in the market:

A one-year zero-coupon bond with a face value of $1000 trading at $900.
A two-year bond paying an annual coupon of $120 and a face value of $1000 trading at par.
What can you conclude about the arbitrage-free forward rate between times 1 and 2, f ?
12
Selected Answer:

It is 13%

Question 2

10 out of 10 points

Which of the following are important differences between the theoretical concept of the term structure
of interest as we've discussed it in class, and the zero-coupon interest rates of government bonds we
use to approximate it, e.g. in slide two of lecture two?
Selected Answer:

D. A and B

Question 3

10 out of 10 points

Suppose the current term structure of interest rates is as follows:

y
1 = 4%

y2 = 5%
y3 = 9%
y4 = 10%
y5 = 11%
What is the arbitrage-free forward rate between times 2 and 4, f ? Give your answer in percentage
24
units with two decimal points, e.g. answer 6.34 if you think the forward rate is 0.06342.
Selected Answer:

15.24

Question 4

10 out of 10 points

The expectations theory of the term structure of interest rates states

that
Selected
Answer:

forward rates are market expectations of future

interest rates.

Question 5

10 out of 10 points

Suppose you observe the three following bonds in the market:

OK

27/03/2013 10:10 PM

Review Test Submission: Online quiz 2

2 of 2

https://lms-blackboard.telt.unsw.edu.au/webapps/assessment/review/re...

A two-year zero-coupon bond with a face value of $100 trading for $89.00
A two-year bond with a face value of $100 and a $10 coupon trading for $107.51
A two-year bond with a face value of $100 and a $20 coupon trading for $127.53
Which of the following statements is true?
Selected Answer:

B. There is a possible arbitrage trade involving a short position in bond C

Question 6

10 out of 10 points

Which of the following are valid reasons why the yield on bonds with
long times to maturity may include a liquidity premium?
Selected Answer:

All of the above

Question 7

10 out of 10 points

Suppose you have an investment horizon of 3 years and hold a 5 year zero-coupon bond. You would
be facing:
Selected Answer:

B. Liquidity risk

Question 8

10 out of 10 points

Suppose you want to find the arbitrage-free forward rate between time 1 and 2, f . What information
12
would be sufficient?
A - The price of a two-year bond with an annual coupon payment of $10 and a face value of $100.
B - The price of a two-year bond with an annual coupon payment of $20 and a face value of $100.
C - The price of a one-year zero-coupon bond with a face value of $100.

Selected Answer:

4. Any of the above combinations.

Question 9

10 out of 10 points

Suppose you observe the following interest rates in the market:

y = 6%
3
f = 6%
12
f = 5%
13
What is the arbitrage-free two-year spot rate, y ?
2
Selected Answer:

7%

Question 10

10 out of 10 points

One way of interpreting the term structure of interest rates is that it

shows the relationship between:
Selected
Answer:

the yield on zero-coupon bonds and the time to maturity

of those bonds.

Wednesday, 27 March 2013 20:46:20 o'clock EST

27/03/2013 10:10 PM