Spring 2009 Midterm 1 A

Spring 2009 Midterm 1 A - 3u: tl t A, 5pr',nq 7u ul E xnlu,...

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3u: tl t A, 5pr',nq 7u ul E xnlu, I VE RSt ont A 1) You have j"ust bought a four-month. 51-million negotiabie CD, which promises to pav i percent amual interest rate. If the interest rates rise on all debt instruments the price cf 2) Federal funds are those funds that f#f bffi"borroru frorn the Federal Reserve "tr) banks borrow from the Federal gorremrnent c) the Federal government borrows from the Federal Resen'e the Federal government borrows when it issues T-securities none ofthe above 3) You buy a money market security that is 90 days from maturitv for 979to of face value. Your Efiective Annual Return (EAR) is i'5'lt i 3. l48o,i)' bt 1?.1670,,; cJ i1.000-04 dj 1.00il0'b ,*1 4) Consider a zero-couponbond that matures exactly in I 0 lrears. Its duration is exactly 10 itional information 5) Comparing the disccunt yield (DY) and the bond equivalent yield (BEY) on the same security, it is rue that ,/' DY > BEY always / DY < BEY alu'avs '/ Whether DY is gr*ut . than or smaller than BEY depends on the maturity of the security and its expected yield 6) The characteristics that best deseribe rRost rnoney market securities are a) Large denomination; original maturity one year or less: low risk of loss of principal ity one year or less; low risk of,loss of principal ty one year or less: low risk of loss ofprincipal; rity one year or less; low risk of loss of principal; /] zero coupoll ( -fr e) Large denomination; original maturity one year or less; high risk of loss of principal {3
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7) You bought a bond one year ago you also received $75 in interest .is a) 4.813 9,i, for $935. The bond's market price yesterday was $980; yesterday. The realized rate of refurn on tiris investment r= 1fi!=j?3.5t1 5 '* ,' **- {&r i,-n 'l6{t t{S'* years ago for P0. The bond's market price yesterday was P2: you *) also received trvo annualt8Supons. each for C, the second one paid -vesterday. The realized rate of return, r, orl this investment can be calculated using 9) A bond has a 109i coupon rate, your required rate of return is 89'o, the bond will mature in 3 years and it pays its coupon annually: to decide u'hether you u41l buy this bond you should use the following formula D_ 100 , I00 100+1000 !_-T-----;--T------_-----:- (1.08) {t .08)' (1 .08)' - _-- 80 80 80+1000 'O i --f = - r -------; i- -------------;- ,--- (l 1) (1 1,\' il . I )' CCC a)' 1000 =-P+ - +---: " + - ' (1-08) (1.08)= (1.08)3 i d) None of the above I0) A bond sells for POr matures in 5 years, has YTM : i (annual basis). If
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Spring 2009 Midterm 1 A - 3u: tl t A, 5pr',nq 7u ul E xnlu,...

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