Question 1

A derivative is a financial instrument whose value is determined by:

Accepted Answer

A)  a regulatory body such as the FTC. 
B)  a primitive or underlying asset. 
C)  hedging a risk. 
D)  hedging a speculation. 
E)  None of these. 
A)  a regulatory body such as the FTC. 
B)  a primitive or underlying asset. 
C)  hedging a risk. 
D)  hedging a speculation. 
E)  None of these.

Question 2

The duration of a 15 year zero coupon bond priced at $182.70 is:

Accepted Answer

A)  2.74 years. 
B)  15 years. 
C)  17.74 years. 
D)  cannot determine without the interest rate. 
E)  None of these. 
A)  2.74 years. 
B)  15 years. 
C)  17.74 years. 
D)  cannot determine without the interest rate. 
E)  None of these.

Question 3

Duration of a pure discount bond:

Accepted Answer

A)  is equal to its half-life. 
B)  is less than a zero coupon bond. 
C)  is equal to the liabilities hedged. 
D)  is equal to its maturity. 
E)  None of these. 
A)  is equal to its half-life. 
B)  is less than a zero coupon bond. 
C)  is equal to the liabilities hedged. 
D)  is equal to its maturity. 
E)  None of these.

Question 4

Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus 75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B have agreed to swap interest payments. What is the net payment this year?

Accepted Answer

A)  Firm A pays $750,000 to Firm B 
B)  Firm B pays $725,000 to Firm A 
C)  Firm B pays $25,000 to Firm A 
D)  Firm A pays $25,000 to Firm B 
E)  None of these. 
A)  Firm A pays $750,000 to Firm B 
B)  Firm B pays $725,000 to Firm A 
C)  Firm B pays $25,000 to Firm A 
D)  Firm A pays $25,000 to Firm B 
E)  None of these.

Question 5

Calculate the duration of a 7-year $1,000 zero-coupon bond with a current price of $399.63 and a yield to maturity of 14%.

Accepted Answer

A)  5 years 
B)  6 years 
C)  7 years 
D)  8 years 
E)  9 years 
A)  5 years 
B)  6 years 
C)  7 years 
D)  8 years 
E)  9 years

Question 6

A forward contract is described by:

Accepted Answer

A)  agreeing today to buy a product at a later date at a price to be set in the future. 
B)  agreeing today to buy a product today at its current price. 
C)  agreeing today to buy a product at a later date at a price set today. 
D)  agreeing today to buy a product if and only if its price rises above the exercise price today at its current price. 
E)  None of these. 
A)  agreeing today to buy a product at a later date at a price to be set in the future. 
B)  agreeing today to buy a product today at its current price. 
C)  agreeing today to buy a product at a later date at a price set today. 
D)  agreeing today to buy a product if and only if its price rises above the exercise price today at its current price. 
E)  None of these.

A derivative is a financial instrument whose value is determined by:

The duration of a 15 year zero coupon bond priced at $182.70 is:

Duration of a pure discount bond:

Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus 75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B have agreed to swap interest payments. What is the net payment this year?

Calculate the duration of a 7-year $1,000 zero-coupon bond with a current price of $399.63 and a yield to maturity of 14%.

A forward contract is described by:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters

Exam 25: Derivatives and Hedging Risk

A derivative is a financial instrument whose value is determined by:

The duration of a 15 year zero coupon bond priced at $182.70 is:

Duration of a pure discount bond:

Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus 75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B have agreed to swap interest payments. What is the net payment this year?

Calculate the duration of a 7-year $1,000 zero-coupon bond with a current price of $399.63 and a yield to maturity of 14%.

A forward contract is described by:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters