Question 1

A trader enters into a long position in one Eurodollar futures contract.How much does the trader gain when the futures price quote increases by 6 basis points?

Accepted Answer

A)  $6 
B)  $150 
C) $60 
D) $600 
A)  $6 
B)  $150 
C) $60 
D) $600 B

Question 2

Which of the following is closest to the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? The yield on the bond is 10% per annum with continuous compounding.

Accepted Answer

A) 1.82 
B) 1.85 
C) 1.88 
D) 1.92 
A) 1.82 
B) 1.85 
C) 1.88 
D) 1.92 C

Question 3

Which of the following is NOT an option open to the party with a short position in the Treasury bond futures contract?

Accepted Answer

A) The ability to deliver any of a number of different bonds 
B) The wild card play 
C) The fact that delivery can be made any time during the delivery month 
D) The interest rate used in the calculation of the conversion factor 
A) The ability to deliver any of a number of different bonds 
B) The wild card play 
C) The fact that delivery can be made any time during the delivery month 
D) The interest rate used in the calculation of the conversion factor D

Question 4

Which of following is applicable to corporate bonds in the United States?

Accepted Answer

A) Actual/360 
B) Actual/Actual 
C) 30/360 
D) Actual/365 
A) Actual/360 
B) Actual/Actual 
C) 30/360 
D) Actual/365

Question 5

The conversion factor for a bond is approximately

Accepted Answer

A) The price it would have if all cash flows were discounted at 6% per annum 
B) The price it would have if it paid coupons at 6% per annum 
C) The price it would have if all cash flows were discounted at 8% per annum 
D) The price it would have if it paid coupons at 8% per annum 
A) The price it would have if all cash flows were discounted at 6% per annum 
B) The price it would have if it paid coupons at 6% per annum 
C) The price it would have if all cash flows were discounted at 8% per annum 
D) The price it would have if it paid coupons at 8% per annum

Question 6

A trader uses 3-month Eurodollar futures to lock in a rate on $5 million for six months.How many contracts are required?

Accepted Answer

A) 5 
B) 10 
C) 15 
D) 20 
A) 5 
B) 10 
C) 15 
D) 20

Question 7

In the U.S.what is the longest maturity for 3-month Eurodollar futures contracts?

Accepted Answer

A) 2 years 
B) 5 years 
C) 10 years 
D) 20 years 
A) 2 years 
B) 5 years 
C) 10 years 
D) 20 years

Question 8

Which of the following day count conventions applies to a US Treasury bond?

Accepted Answer

A) Actual/360 
B) Actual/Actual (in period) 
C) 30/360 
D) Actual/365 
A) Actual/360 
B) Actual/Actual (in period) 
C) 30/360 
D) Actual/365

Question 9

The time-to-maturity of a Eurodollars futures contract is 4 years and the time-to-maturity of the rate underlying the futures contract is 4.25 years.The standard deviation of the change in the short term interest rate,σ  = 0.011.What does the model in the text estimate as the difference between the futures and the forward interest rate?

Accepted Answer

A) 0.105% 
B) 0.103% 
C) 0.098% 
D) 0.093% 
A) 0.105% 
B) 0.103% 
C) 0.098% 
D) 0.093%

Question 10

Which of the following is true?

Accepted Answer

A) The futures rates calculated from a Eurodollar futures quote are always less than the corresponding forward rate 
B) The futures rates calculated from a Eurodollar futures quote are always greater than the corresponding forward rate 
C) The futures rates calculated from a Eurodollar futures quote should equal the corresponding forward rate 
D) The futures rates calculated from a Eurodollar futures quote are sometimes greater than and sometimes less than the corresponding forward rate 
A) The futures rates calculated from a Eurodollar futures quote are always less than the corresponding forward rate 
B) The futures rates calculated from a Eurodollar futures quote are always greater than the corresponding forward rate 
C) The futures rates calculated from a Eurodollar futures quote should equal the corresponding forward rate 
D) The futures rates calculated from a Eurodollar futures quote are sometimes greater than and sometimes less than the corresponding forward rate

Question 11

An ultra T-bond futures contract is one where

Accepted Answer

A) Bonds with maturities less than 3 years can be delivered 
B) Bonds with maturities less than 10 years can be delivered 
C) Bonds with maturities greater than 15 years can be delivered 
D) Bonds with maturities greater than 25 year can be delivered 
A) Bonds with maturities less than 3 years can be delivered 
B) Bonds with maturities less than 10 years can be delivered 
C) Bonds with maturities greater than 15 years can be delivered 
D) Bonds with maturities greater than 25 year can be delivered

Question 12

How much is a basis point?

Accepted Answer

A) 1.0% 
B) 0.1% 
C) 0.01% 
D) 0.001% 
A) 1.0% 
B) 0.1% 
C) 0.01% 
D) 0.001%

Question 13

Which of the following is NOT true about duration?

Accepted Answer

A) It equals the years-to-maturity for a zero coupon bond 
B) It equals the weighted average of payment times for a bond, where weights are proportional to the present value of payments 
C) Equals the weighted average of individual bond durations for a portfolio, where weights are proportional to the present value of bond prices 
D) The prices of two bonds with the same duration change by the same percentage amount when interest rate moves up by 100 basis points 
A) It equals the years-to-maturity for a zero coupon bond 
B) It equals the weighted average of payment times for a bond, where weights are proportional to the present value of payments 
C) Equals the weighted average of individual bond durations for a portfolio, where weights are proportional to the present value of bond prices 
D) The prices of two bonds with the same duration change by the same percentage amount when interest rate moves up by 100 basis points

Question 14

It is May 1.The quoted price of a bond with a 30/360 day count and 12% per annum coupon in the United States is 105.It has a face value of 100 and pays coupons on April 1 and October 1.What is the cash price??

Accepted Answer

A) 106.00 
B)  106.02 
C)  105.98 
D)  106.04 
A) 106.00 
B)  106.02 
C)  105.98 
D)  106.04

Question 15

The most recent settlement bond futures price is 103.5.Which of the following four bonds is cheapest to deliver?

Accepted Answer

A) Quoted bond price = 110; conversion factor = 1.0400. 
B) Quoted bond price = 160; conversion factor = 1.5200. 
C) Quoted bond price = 131; conversion factor = 1.2500. 
D) Quoted bond price = 143; conversion factor = 1.3500. 
A) Quoted bond price = 110; conversion factor = 1.0400. 
B) Quoted bond price = 160; conversion factor = 1.5200. 
C) Quoted bond price = 131; conversion factor = 1.2500. 
D) Quoted bond price = 143; conversion factor = 1.3500.

Question 16

A portfolio is worth $24,000,000.The futures price for a Treasury note futures contract is 110 and each contract is for the delivery of bonds with a face value of $100,000.On the delivery date the duration of the bond that is expected to be cheapest to deliver is 6 years and the duration of the portfolio will be 5.5 years.How many contracts are necessary for hedging the portfolio?

Accepted Answer

A) 100 
B) 200 
C) 300 
D) 400 
A) 100 
B) 200 
C) 300 
D) 400

Question 17

What is the quoted discount rate on a money market instrument?

Accepted Answer

A) The interest rate earned as a percentage of the final face value of a bond 
B) The interest rate earned as a percentage of the initial price of a bond 
C) The interest rate earned as a percentage of the average price of a bond 
D) The risk-free rate used to calculate the present value of future cash flows from a bond 
A) The interest rate earned as a percentage of the final face value of a bond 
B) The interest rate earned as a percentage of the initial price of a bond 
C) The interest rate earned as a percentage of the average price of a bond 
D) The risk-free rate used to calculate the present value of future cash flows from a bond

Question 18

The bonds that can be delivered in a Treasury bond futures contract are

Accepted Answer

A) Assets that provide no income 
B) Assets that provide a known cash income 
C) Assets that provide a known yield 
D) None of the above 
A) Assets that provide no income 
B) Assets that provide a known cash income 
C) Assets that provide a known yield 
D) None of the above

Question 19

Duration matching immunizes a portfolio against

Accepted Answer

A) Any parallel shift in the yield curve 
B) All shifts in the yield curve 
C) Changes in the steepness of the yield curve 
D) Small parallel shifts in the yield curve 
A) Any parallel shift in the yield curve 
B) All shifts in the yield curve 
C) Changes in the steepness of the yield curve 
D) Small parallel shifts in the yield curve

Question 20

It is May 1.The quoted price of a bond with an Actual/Actual (in period)day count and 12% per annum coupon (paid semiannually)in the United States is 105.It has a face value of 100 and pays coupons on April 1 and October 1.What is the cash price??

Accepted Answer

A) 106.00 
B)  106.02 
C)  105.98 
D) 106.04 
A) 106.00 
B)  106.02 
C)  105.98 
D) 106.04

Exam 6: Interest Rate Futures

A trader enters into a long position in one Eurodollar futures contract.How much does the trader gain when the futures price quote increases by 6 basis points?

Which of the following is closest to the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? The yield on the bond is 10% per annum with continuous compounding.

Which of the following is NOT an option open to the party with a short position in the Treasury bond futures contract?

Which of following is applicable to corporate bonds in the United States?

The conversion factor for a bond is approximately

A trader uses 3-month Eurodollar futures to lock in a rate on $5 million for six months.How many contracts are required?

In the U.S.what is the longest maturity for 3-month Eurodollar futures contracts?

Which of the following day count conventions applies to a US Treasury bond?

Which of the following is true?

An ultra T-bond futures contract is one where

How much is a basis point?

Which of the following is NOT true about duration?

It is May 1.The quoted price of a bond with a 30/360 day count and 12% per annum coupon in the United States is 105.It has a face value of 100 and pays coupons on April 1 and October 1.What is the cash price??

The most recent settlement bond futures price is 103.5.Which of the following four bonds is cheapest to deliver?

What is the quoted discount rate on a money market instrument?

The bonds that can be delivered in a Treasury bond futures contract are

Duration matching immunizes a portfolio against

It is May 1.The quoted price of a bond with an Actual/Actual (in period)day count and 12% per annum coupon (paid semiannually)in the United States is 105.It has a face value of 100 and pays coupons on April 1 and October 1.What is the cash price??

Introduction

Mechanics of Futures Markets

Hedging Strategies Using Futures

Interest Rates

Determination of Forward and Futures Prices

Swaps

Securitization and the Credit Crisis of 2007

OIS Discounting, Credit Issues, and Funding Costs

Mechanics of Options Markets

Properties of Stock Options

Trading Strategies Involving Options

Binomial Trees

Wiener Processes and Ito’s Lemma

The Black-Scholes-Merton Model

Employee Stock Options

Options on Stock Indices and Currencies

Futures Options

The Greek Letters

Volatility Smiles

Basic Numerical Procedures

Value at Risk

Estimating Volatilities and Correlations

Credit Risk

Credit Derivatives

Exotic Options

Filters