Question 1

If zero rates with continuous compounding for 4 and 5 years are 4% and 5% respectively, what is the forward rate for year 5?

Options :

A : 5%

B : 9%

C : 9.097%

D : 7%

Answer: B

Question 2

Which of the following will have the effect of increasing the duration of a bond, all else remaining equal:

I. Increase in bond coupon

II. Increase in bond yield

III. Decrease in coupon frequency

IV. Increase in bond maturity

Options :

A : III and IV

B : I and III

C : I and II

D : II, III and IV

Answer: A

Question 3

Which of the following best describes the efficient frontier?

Options :

A : The efficient frontier identifies portfolios with the lowest return per unit of volatility

B : The efficient frontier identifies portfolios with the highest return per unit of volatility

C : The efficient frontier identifies the market portfolio

D : The efficient frontier identifies portfolios with the highest volatility for a given level of return

Answer: B

Question 4

Identify the underlying asset in a treasury note futures contract?

Options :

A : Any long term US Treasury bond with a maturity of more than 10 years and not callable within 10 years

B :

Any long term US Treasury note with a maturity between 6.5 years and 10 years from the date of delivery

C : Any long term US Treasury bond with a maturity of more than 15 years and not callable within 15 years

D : Any of the above, with the price adjusted with the coupon and maturity date of the bond delivered

Answer: B

Question 5

Callable corporate bonds:

Options :

A : generally yield less than non-callable bonds due to the call feature

B : need to be priced lower than non-callable bonds to make them attractive to investors

C : are more convex than their non-callable counterparts

D : are generally called when their prices have fallen below the issuance price

Answer: B

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