BUS 288- Floating rate notes have a duration that

BUS 288- Floating rate notes have a duration that

Subject: Business    / Finance    

Question

1. Floating rate notes have a duration that:

a. is infinite

b. is equal to one plus the yield divided by the yield

c. is at least equal to the time between coupon payments

d. is at most equal to the time between coupon payments

2. If a short futures position is held by a hedger, a corresponding long futures position must be held by:

a. a speculator

b. a hedger

c. an arbitrageur

d. any of the above

3. If a 90-day bank bill ($1000 face value) was purchased for $985.56 on the date of issue and sold 30 days later for $991.14, what was the holding period return?

a. 5.44% p.a.

b. 5.66% p.a.

c. 5.94% p.a.

d. 6.89% p.a.

4. The low of one price is least likely to hold when:

a. Speculators are pessimistic about an interest rate increase

b. Speculators are optimistic about an interest rate decrease

c. Arbitrageurs are actively trading in a market

d. Arbitragers are prevented from trading in a market

5. Which of the following statements is incorrect?

a. Arbitrageurs are motivated to earn a profit

b. Arbitrageurs are motivated to reduce the risk of an existing exposure

c. Arbitrageurs aim for a risk-free position

d. Arbitrageurs profit from inconsistent pricing

6. Equity markets involve:

a. A permanent transfer of funds

b. A temporary transfer of funds

c. A predetermined return to investors

d. Both B and D

7. The maintenance margin for a futures contract refers to:

a. The level to which a margin deposit must be returned after a margin call has been made

b. The level to which a margin deposit is set when an investor enters a long futures position

c. The difference between the futures market price and the contract price

d. The level of the margin deposit that would trigger a margin call

8. Liquidity premium theory suggests that:

a. there is a downward bias in the yield curve

b. the market for some securities may be thinly traded; hence, investors require a reward for this risk

c. there is an upward bias in the yield curve because interest rate risk increases with term to maturity

d. there is a premium due to uncertainty about the future level of interest rates

9. Calculate the duration of a portfolio consisting of 20 of band A, and 1000 of bond B, which have the attributes, listed in the table below.

Bond
    

Coupon rate
    

Face value
    

Price
    

Maturity
    

Duration

A
    

Nil
    

$100,000
    

$92,592.60
    

1 year
    

1 year

B
    

6%(Annual)
    

$1000
    

$907.54
    

6 years
    

5.17 years