1.

Which of these statements is false:

a. Forward rate agreements are OTC derivatives
b. Forward rate agreements require a notional principal
c. Borrowers will go short in forward rate agreements
d. A 3 x 9 FRA is the rate for a 6-month loan after 3 months
2. If we find the upper and lower bounds for the forward rate using bid and ask
money market interest rates, which of these statements is false:
a. We can do by ruling out profits for an arbitrageur
b. We can do so by ruling out profits for a dealer
c. We can do so by factoring in profits for a dealer
d. The upper and lower bounds are a function of the day-count
convention assumed
3. Which of these statements is false:
a. FRAs lock in a borrowing rate for borrowers
b. FRAS lock in a lending rate for lenders
c. Bullish speculators and borrowers will go long in FRAs
d. Bearish speculators and borrowers will go long in FRAs
4. A party wants to borrow 10 MM for 90 days at LIBOR + 30 bp on the
expiration date of the ED futures contract. The current 90-day LIBOR is
3.75%. The current ED futures price is 96.4. Which of these statements is
false?
a. It must go short in futures
b. It needs 10 futures contracts
c. It can lock in an annualized rate of 4.05%
d. It can lock in an annualized rate of 3.9%
5. A party wants to borrow 10 MM dollars for X days on the expiration date of the
ED futures contracts. It can borrow at the X-day LIBOR + 25 bp. At any point
in time the X-day LIBOR = 90-day LIBOR + 35 bp. The current ED futures
price is 96.2. The party decides to use 14 ED futures contracts. Which of
these statements is false?
a. X = 126 days
b. The party can lock in a rate of 4.05%
c. It can lock in a rate of 4.40%
d. It must go short in futures contracts
6. A party wants to borrow X million dollars for N days on the expiration date of
the ED futures contracts. It can borrow at the N-day LIBOR. At any point in
time the N-day LIBOR = 1.17 x 90-day LIBOR plus 35 b.p. The current ED
futures price is 96.2. Which of these statements is false:
a. The party can lock in a rate of 4.796%
b. The party can lock in a rate of 4.446%
c. The party needs 0.013NX futures contracts
d. It must go short in futures contracts
7. The last tranche of a sequential pay CMO gets fully paid off after 60 months.
Which of these statements is true:
a. There must be three tranches
b. The last tranche may be an accrual bond
c. It must be a sequential pay CMO without an accrual bond
d. The SMM must be zero
8. The conversion factor for a bond is 1.125. Which of these statements is true:
a. It must be a premium bond
b. The coupon is greater than 6% per annum compounded semi-annually
c. The bond will have an integer number of semi-annual periods as of the
first day of the delivery month
d. Its YTM must be greater than 6% per annum
9. Which of these statements is false:
a. The quoted T-bond futures price is a clean price
b. If the quoted T-bond futures price is less than 1.0 the conversion factor
must be less than 1.0
c. The amount payable under a T-bond futures contract may be less than
100000
d. Accrued interest is paid as of the delivery date in the case of a T-bond
futures contract
10. An asset has a gamma of zero
a. It must have a delta that is not a function of the asset price
b. It may be a stock
c. It may be a futures contract
d. All of the above