CHAPTER 3: BOND VALUE AND RETURN
PROBLEMS AND QUESTIONS WITH SOLUTIONS
Note on Problems: For problems requiring a number of calculations, the reader may want
to use their own Excel program, a financial calculator, or the Bond Excel Program
available on th
1CHAPTER 11: BOND AND INTEREST RATE FUTURES CONTRACTS
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. Explain the differences between forward and futures contracts.
2. Define and explain the functions provided by futures exchanges.
3. Explain why the price on an
CHAPTER 14: INTEREST RATE AND CREDIT DEFAULT SWAPS
PROBLEMS AND QUESTIONS WITH SOLUTIONS
Given the following interest-rate swap:
Fixed-rate payer pays half of the YTM on a T-note of 6.5%.
Floating-rate payer pays the LIBOR
Notional principal is $10 mil
CHAPTER 5: BOND RISK
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. The table below shows the historical cumulative probabilities for corporate bonds
with quality ratings of AA and B:
Year
AA
B
Cumulative Probabilities (%)
1
2
3
0.10
0.40
1.10
6.00
13.00
20.00
CHAPTER 1: OVERVIEW OF THE FINANCIAL SYSTEM
PROBLEMS AND QUESTIONS
1. Explain how real and financial assets are created through the capital formation
process in both the private and public sectors.
2. Comment on what is meant by the statement: The financi
CHAPTER 7: CORPORATE DEBT SECURITIES
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. What are the major benefits and costs to a corporation of financing its operations
with debt instead of equity?
2. Define and briefly explain the following terms:
a. Amortizatio
CHAPTER 6: BOND INVESTMENT STRATEGIES
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. Comment on the objective of many strategies based on credit analysis.
2. List the factors that should be considered in conducting a credit analysis of a
municipal general oblig
CHAPTER 4: THE LEVEL AND TERM STRUCTURE OF INTEREST RATES
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1.
Explain the impacts of the following cases on the level of interest rates.
a. Expansionary open market operation
b. Economic Recession
c. Treasury financing
CHAPTER 7: GOVERNMENT SECURITIES AND MARKETS: TREASURIES,
AGENCIES, MUNICIPALS, AND SOVEREIGN DEBT SECURITIES
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. Define and list the features of the following:
a. T-bills
b. T-bonds and T-notes
c. Non-market series
d.
CHAPTER 9: INTERMEDIARY DEBT SECURITIES,
INVESTMENT FUNDS, AND MARKETS
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. Define the following:
a. Prime CDs
b. Nonprime banks
c. Yankee CDs
d. Eurodollar CDs
2. Describe the primary market for CDs. Who are the some o
CHAPTER 13: THE VALUATION OF DEBT OPTIONS AND BONDS WITH
EMBEDDED OPTION FEATURESTHE BINOMIAL INTEREST RATE TREE
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1.
Given a current one-period spot rate of S0 = 10%, upward and downward
parameters of u = 1.1 and d = .
CHAPTER 12: BOND AND INTEREST RATE OPTION CONTRACTS
PROBLEMS AND QUESTIONS WITH SOLUTIONS
Note on Problems: A number of the problems can be done in Excel by writing a program
or using the Option Strategy Excel Program available on the website.
1.
Show gra
CHAPTER 10: MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES AND SECURITIZATION
PROBLEMS AND QUESTIONS WITH SOLUTIONS
1. Suppose ABC Bank has a fixed-rate mortgage portfolio with the following features:
Mortgage portfolio balance = $100,000,000
Weighted Aver