Q#1 ACTFMKT 2021-2 Correct!

False

Due Mar 16 at 19:45 Points 50 Questions 35

Available Mar 16 at 17:45 - Mar 16 at 19:45 about 2 hours Time Limit 120 Minutes

Question 2 1 / 1 pts
Instructions
To distinguish a money market instrument from a capital market instrument,
This quiz covers topics 1.1-1.4 and have a total of 50 points. It has 10 T/F questions, 10 MC you simply have to compare the securities’ rates of return.
questions and 15 (2 pts. each) problem solving questions. Since this is an online quiz, you can open
your notes while taking the quiz and even use excel in the computation.
True
For problem solving questions, do not round-off in between calculation and round-off final answers to
2 decimal places unless otherwise stated in the question. All answers in percentage should be Correct!
False
entered in their decimal form up to 4 decimal places (e.g. 2.33% should be entered as 0.0233).

No partial points will be given since this is open-notes and there are no solutions required.

Quiz Type
Question 3 1 / 1 pts
This quiz was locked Mar 16 at 19:45.

As Bangko Sentral ng Pilipinas (BSP) implements expansionary monetary

Attempt History policies, supply of funds available increases resulting to lower interest rate
and higher inflation rate.
Attempt Time Score
LATEST Attempt 1 111 minutes 30 out of 50 Correct!
True

False
Score for this quiz: 30 out of 50
Submitted Mar 16 at 19:44
This attempt took 111 minutes.

Question 1 1 / 1 pts 0 / 1 pts

Question 4

Considering that there are publicly-listed companies that have international Depository financial institutions normally rely on insured deposits as their
operations, the Philippine Stock Exchange is also considered as a foreign source of financing.
exchange market.

orrect Answer
True
True

ou Answered Correct!
False False

Question 8 1 / 1 pts
Question 5 1 / 1 pts

As long as there are coupon payments prior to maturity, duration would

An initial public offering is usually conducted in a secondary market.
always be lower than maturity both for discount bond and premium bond.

True Correct!
True

Correct!
False
False

Question 6 0 / 1 pts
Question 9 1 / 1 pts

Convexity is desirable trait of a security because it makes the investment

Banks serves as financial intermediary by channeling loans to businesses
immune to capital loss.
into savings of individuals.

ou Answered
True
True

orrect Answer Correct!

False False

Question 7 1 / 1 pts 0 / 1 pts

Question 10

One benefit of a financial institution is that it provides denomination A security that is traded in a secondary market would normally have lower
intermediation wherein it is able to meet the preferred maturity periods of liquidity risk premium than a security that is not traded in a secondary
both the user and supplier of funds. market.

True orrect Answer

True
ou Answered False
Question 13 1 / 1 pts

The interest rate that equates future cash flows with the current market price
is the
Question 11 1 / 1 pts

Correct!
Expected rate of return
Aside from influencing money supply through monetary policies, BSP also
perform which of the following function/s? Realized rate of return

Realized yield to maturity

Insures deposit liabilities of banks

Required rate of return

Issue Philippine treasury securities

Correct!
Determine the exchange rate policy of the country

Lend money companies for business expansion Question 14 1 / 1 pts

Which component of interest rate compensates investors for reduced

purchasing power of principal?
Question 12 1 / 1 pts

Credit risk premium

Which of the following transactions will take place in the capital market?
Liquidity risk premium

All three choices will take place in the capital market

Maturity risk premium

Correct!
Evertrade Enterprises sells P10 million Treasury bills out of its marketable Inflation premium
securities portfolio

Yetti Inc. issued commercial paper to raise working capital

Question 15 1 / 1 pts
Correct!
Hi-Tree Company buys P50 million of previously issued JKL bonds

One of the major factor affecting price and price volatility is coupon rate. The
___ the coupon rate, the ___ the price of a security at a given interest rate

and the ____ the price changes for a given change in interest rates.
depository, non-contractual

higher, higher, larger Correct!

non-depository, contractual

lower, higher, smaller

higher, lower, smaller

Question 18 1 / 1 pts
Correct!
lower, lower, larger

Instead of transacting directly in the financial market, Albert prefers to invest

his money through a commercial bank because it provides regular reports
about his investment. This describes which economic function of financial
1 / 1 pts institutions?
Question 16

Asset monitoring
Which type of duration is a more appropriate for bonds with embedded
options?
Mandated reporting

Correct!
Macaulay duration Delegated monitor

Correct!
Effective duration Asset Transformer

Portfolio duration

Modified duration
Question 19 0 / 1 pts

Convexity adjusts duration predicted prices by ___ predicted price increase

1 / 1 pts and ___ predicted price fall.
Question 17

Decreasing, increasing
Insurance companies are considered ____, ____ financial institutions?
orrect Answer Increasing, decreasing
depository, contractual
ou Answered Decreasing, decreasing
non-depository, non-contractual

Increasing, increasing
 Question 22 0 / 2 pts
Question 20 1 / 1 pts

A contractionary monetary policy would result to ___ in prevailing interest 21-22. Assume that today, the annualized five-year interest rate is 14%, and
rate leading to _____ in inflation rate. the one-year interest rate is 11.5%. A six-year security currently has an
annualized interest rate of 14.7% while a four-year security has an interest
rate of 13.3%.
increase, higher

decrease, higher Assuming a liquidity premium of 1% on year 6, what is the one-year forward
rate of a security purchased five years from now?
decrease, lower
Indicate your final answer in decimal form with 4 decimal places (e.g. 3.22%
Correct! should be entered as 0.0322)
increase, lower

Question 21 0 / 2 pts
ou Answered
0.1435

21-22. Assume that today, the annualized five-year interest rate is 14%, and
orrect Answer 0.1727
the one-year interest rate is 11.5%. A six-year security currently has an
annualized interest rate of 14.7% while a four-year security has an interest
rate of 13.3%.

Question 23 0 / 2 pts
Assuming no liquidity premium, what is the one-year forward rate of a
security purchased four years from now?
A 10-year, 8% coupon annual payment P1,000 par value bond has an
Indicate your final answer in decimal form with 4 decimal places (e.g. 3.22%
intrinsic value of P1,054.34. However, you paid P1,023.7775 for the bond.
should be entered as 0.0322)
By how many basis points is your expected return different from the required
return? Indicate negative sign if expected return is lower than required return.
ou Answered
0.1463
ou Answered
0.21

orrect Answers 0.1684 (with margin: 0)

orrect Answers 43.27 (with margin: 0)

24-26. A 4-year P1,000 bond has a 11% coupon that pays semi-annually.
The bond’s YTM is currently at 9%.

2 / 2 pts What is the predicted price (using duration) if annual interest rate increase
Question 24
by 40 basis points?

24-26. A 4-year P1,000 bond has a 11% coupon that pays semi-annually. ou Answered
1,052.34
The bond’s YTM is currently at 9%.

What is the bond's duration (in years)?

orrect Answer 1,052.23

Correct!
3.37

orrect Answers 3.37 (with margin: 0) Question 27 0 / 2 pts

27-28. The current annualized yield of a two-year security is 11% while the
Question 25 2 / 2 pts annualized yield of a two-year security to be purchased after 2 years is
11.8%. The one-year interest rate is currently at 10.6%.

According to the unbiased expectation theory, what should be the yield of a

24-26. A 4-year P1,000 bond has a 11% coupon that pays semi-annually. four-year security today?
The bond’s YTM is currently at 9%.
Indicate your final answer in decimal form with 4 decimal places (e.g. 3.22%
What is the bond's modified duration? should be entered as 0.0322)

Correct! ou Answered
3.22 0.2552

orrect Answers 3.22 (with margin: 0)

orrect Answer 0.114

Question 26 0 / 2 pts
Question 28 2 / 2 pts
 29-30. Sarah holds three bonds in her portfolio: N, O, and W:
27-28. The current annualized yield of a two-year security is 11% while the
annualized yield of a two-year security to be purchased after 2 years is Bond Investment value Duration in years
11.8%. The one-year interest rate is currently at 10.9%.

N 600,500 4.51
Correct!
0.111

O 245,000 8.05
orrect Answer 0.111
W 354,500 6.33

If Sarah sells half of her investment in Bond N and invests the proceeds in an
Question 29 2 / 2 pts 7-year zero-coupon bond, her new portfolio duration will be ________ years.

29-30. Sarah holds three bonds in her portfolio: N, O, and W: ou Answered

6.39

Bond Investment value Duration in years

orrect Answer 4.75
N 600,500 4.51

O 245,000 8.05
Question 31 0 / 2 pts
W 354,500 6.33

31-32. An eight-year maturity AAA-rated P1,000 par value bond has a 6%

Compute for Sarah’s portfolio duration. coupon rate. The bond's promised yield is currently 5.7%, pays interest
annually and has an annual duration of 6.59739 years.

Correct! What is the bond's convexity?

5.77

ou Answered
orrect Answers 5.77 (with margin: 0) 49.5818

orrect Answers 49.58 (with margin: 0)

Question 30 0 / 2 pts

Question 32 0 / 2 pts Inflation premium 2.64%

Default risk premium 3.84%

31-32. An eight-year maturity AAA-rated P1,000 par value bond has a 6%
coupon rate. The bond's promised yield is currently 5.7%, pays interest Maturity risk premium 2.85%
annually and has an annual duration of 6.59739 years.

If promised yields decrease to 5.4%, what is the bond's predicted new price, Special feature premium 2.10%
including convexity?
What is the risk-free rate?

Indicate your final answer in decimal form with 4 decimal places (e.g. 3.22%
ou Answered
1,038.66 should be entered as 0.0322)

orrect Answers 1,038.16 (with margin: 0) ou Answered

0.0352

orrect Answer 0.0616

Question 33 0 / 2 pts

The price of a convertible bond is currently P1,207.6. Based on the analyst’s

pricing model, the price should fall to P1,189.5 if there is a 25 basis points Question 35 0 / 2 pts
decrease in its yield to maturity. On the other hand, the price should rise to
P1,251.7 when the yield to maturity increases by 25 basis points. Calculate
the effective duration of the convertible bond 34-35. A 7-year callable bond is currently yielding 14.95% including the
following risk premiums:
ou Answered
-10.3014
Inflation premium 2.62%

orrect Answer 10.3 Default risk premium 3.84%

Maturity risk premium 2.85%

0 / 2 pts Special feature premium 2.10%

Question 34

Compute for the estimated yield of a similar non-callable 7-year bond.

34-35. A 7-year callable bond is currently yielding 14.95% including the Indicate your final answer in decimal form with 4 decimal places (e.g. 3.22%
following risk premiums: should be entered as 0.0322)
ou Answered
0.0562

orrect Answer 0.1285

Quiz Score: 30 out of 50

This quiz score has been manually adjusted by +6.0 points.