Test Bank: Chapter 6 Interest Rate Futures 1.

Which of following is applicable to corporate bonds in the United States (circle one) (a) Actual/360 (b) Actual/Actual (c) 30/360 (d) Actual/36 !. "t is #a$ 1. %he &uoted price of a bond with an Actual/36 da$ count and 1!' per annu( coupon in the United States is 10 . "t has a face )alue of 100 and pa$s coupons on April 1 and *ctober 1. What+ to two deci(al place accurac$+ is the cash price, - - - - - 3. What difference would it (a.e to $our answer to &uestion 3 if the bond/s da$ count were 30/360, - - - - - 0. %he &uoted futures price is 103. . Which of the following four bonds is cheapest to deli)er (circle one) (a) 1uoted price 2 1103 con)ersion factor 2 1.0000. (b) 1uoted price 2 1603 con)ersion factor 2 1. !00. (c) 1uoted price 21313 con)ersion factor 2 1.! 00. (d) 1uoted price 2 1033 con)ersion factor 2 1.3 00. . Which of the following is not an option open to the part$ with a short position in the %reasur$ bond futures contract (circle one) (a) %he abilit$ to deli)er an$ of a nu(ber of different bonds (b) %he wild card pla$ (c) %he fact that deli)er$ can be (ade an$ ti(e during the deli)er$ (onth (d) %he interest rate used in the calculation of the con)ersion factor 6. A trader enters into a long position in one 4urodollar futures contract. 5ow (uch does the trader gain when the futures price &uote increases b$ 6 basis points, -----6. A co(pan$ in)ests 71+000 in a fi)e8$ear 9ero8coupon bond and 70+000 in a ten8 $ear 9ero8coupon bond. What is the duration of the portfolio, - - - - - :. %he (odified duration of a bond portfolio worth 71 (illion is $ears. ;$ appro<i(atel$ how (uch does the )alue of the portfolio change if all $ields increase b$ basis points, "ndicate whether the dollar a(ount $ou calculate is an increase or a decrease - - - - - - - - - - - - -

..=.. .. Which of the following is true (circle one) (a) %he futures rates calculated fro( a 4urodollar futures &uote is alwa$s less than the corresponding forward rate (b) %he futures rates calculated fro( a 4urodollar futures &uote is alwa$s greater than the corresponding forward rate (c) %he futures rates calculated fro( a 4urodollar futures &uote should e&ual the corresponding forward rate (d) %he futures rates calculated fro( a 4urodollar futures &uote is so(eti(es greater than and so(eti(es less than the corresponding forward rate . 5ow (an$ contracts are necessar$ for hedging the portfolio. %he futures price for a %reasur$ note futures contract is 110 and each contract is for the deli)er$ of bonds with a face )alue of 7100+000.- 10.. *n the deli)er$ date the duration of the bond that is e<pected to be cheapest to deli)er is 6 $ears and the duration of the portfolio will be . $ears. A portfolio is worth 7!0+000+000.

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