Exam 7: Interest Rates Forwards and Futures

The annual coupon rate on a 1-year treasury bond is 5.5%. The coupon on a 2-year treasury bond is 5.8%. What is the continuously compounded yield on a 2-year zero coupon bond?

Given a 3-year, 8.0% annual coupon bond with a par value of $1,000, what is the bondʹs Macaulay duration if the yield to maturity is 9.5%?

Two months from today you plan to borrow $3 million for 6 months at LIBOR. You hedge your interest rate risk with a euro dollar futures contract priced at 93.6. If settled in arrears, what is your payment if the 6-month LIBOR is 2.5% in two months?

You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days. The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon bond is 0.9634. What are the transactions used to create this instrument?

The price of a 3-year zero coupon government bond is 85.16. The price of a similar 4-year bond is 78.81. What is the 1-year implied forward rate from year 3 to year 4?

Which of the following formulas is used to determine the cheapest to deliver?

Explain the process of creating a synthetic Forward Rate Agreement.

Explain the expectations hypothesis and its ability to accurately forecast interest rates.

The price of a 3-year zero coupon government bond is 85.16. The price of a similar 4-year bond is 78.81. What is the yield to maturity (effective annual yield) on the 3-year bond?

The conversion factor on a deliverable bond is 1.03 and the bond price is 100.50. The observed futures price is 97.5 and the YTM is 5.8%. What is invoice less market price on the security?

Compute the conversion factor on a semi-annual 6.8% coupon bond, which matures in 1 Exactly 5 ₂

The prices of 1, 2, 3, and 4-year zero coupon government bonds are 95.42, 90.36, 85.16, and 78.81, respectively. What is the implied 2-year forward rate between years 2 and 4?

The price of a 6-month T-bill is 96.73. You wish to enter into a repurchase agreement that provides for your purchase of a $100,000 bond in 10 days at a price of 97.02. What is the implied 10 day repo rate in this transaction?

The prices of 1, 2, 3, and 4-year zero coupon government bonds are 95.42, 90.36, 85.16, and 78.81, respectively. What is the continuously compounded 3-year zero yield?

The price of a 3-year zero coupon government bond is 85.16. The price of a similar 4-year bond is 79.81. What is the yield to maturity (effective annual yield) on the 4-year bond?

You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days. The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon bond is 0.9634. What is the approximate yield on the synthetic FRA?

The prices of 1, 2, 3, and 4-year zero coupon government bonds are 95.42, 90.36, 85.16, and 78.81, respectively. What is the par coupon on a 4-year coupon bond selling at par?

The annual coupon rate on a 1-year treasury bond is 5.5%. The coupon on a 2-year treasury bond is 5.8%. What is the implied YTM on a hypothetical 2-year zero coupon treasury bond?

Which is the more precise measurement of bond price sensitivity?

An investor holds a bond with a duration of 7.2 years. The only available security with which to hedge has a duration of 1.8 years. Given comparable par values, how many of the hedge security will be shorted to properly create a hedge?