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Unformatted text preview: UNIVERSITY OF ESSEX DEPARTMENT OF ECONOMICS EC372 Economics of Bond and Derivatives Markets Multiple Choice Test Spring Term 2010 Time allowed: 40 minutes. There are TWENTY questions, ALL of which should be answered. DO NOT START UNTIL YOU ARE ASKED TO BEGIN. Enter your registration number on the answer sheet. For each question, mark the most appropriate option, A, B, C, or D, on the answer sheet. Calculators (hand held, containing no textual information) are permit ted. Only the answer sheet is to be returned. You should keep the question paper (this document). The purpose of the test is solely formative for students to gauge their understanding of the course material. The mark will carry no weight in your overall result for the course. 1. A zerocoupon bond with current market price equal to $81 matures two years from the present at which time its holder will receive $100. A. The bonds spot yield is greater than its yield to maturity. B. The bonds current spot yield equals 19%. C. The bonds current spot yield is greater than 9%. D. The bonds current spot yield is less than 9%. 2. A bond with market price p , pays a coupon of $10 for each of the next 12 years, at which time its holder also receives its facevalue, $100. The bonds yield to maturity measures: A. The rate of return such that p equals the Net Present Value of the stream of coupons plus $100 after 12 years. B. The rate of return guaranteed to an investor who holds the bond for the entire 12 years. C. The rate of return such that p equals the Net Present Value of $100 after 12 years, excluding the coupons. D. The rate of return such that p equals the Net Present Value of the bonds stream of coupons, excluding its face value. 3. A bond promises to pay a coupon of 5 at the end of each of the next four years, together with payment of its face value of 100 at the end of the fourth year. The bonds yield to maturity is 7%. The Macaulay duration of the bond is: A. Equal to its coupon rate, 5% ( = 5 / 100 ). B. Equal to its time to maturity, 4 years. C. Greater than its time to maturity, 4 years. D. Smaller than its time to maturity, 4 years. 4. The following information is provided for bonds A , B and C : Bond A Bond B Bond C Payoff after 1 year: 25 100 Payoff after 2 years: 100 100 Todays price: Not traded 96 90 A. Todays fair value of bond A equals 125. B. Todays fair value of bond A equals 114 C. Todays fair value of bond A equals 120. D. Todays fair value of bond A equals 93. 1 5. Two zerocoupon bonds each have face value $100, maturing 1 year and 5 years, respectively, from today. The 1year bond has a spot yield of 3%. The 5year bond has a spot yield of 7%....
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 Spring '12
 R.E.Bailey
 Economics

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