Chapter 1 Features of Fixed Income Securities 1) A bond as a par value of $5,000 and a coupon rate of 8.5% payable semiannually. What is the dollar amount of the semiannual coupon payment? a. $212.50 b. $238.33 c. $425.00 d. $476.66 2) From the perspectiv
Chapter 2 Risk Associated with Investing in Bonds 1) A bond with a 7.3% yield has duration of 5.4 and is trading at $985.00. If the yield decreases to 7.1%, the new bond price is closest to: a. %974.40 b. $1,038.30 c. $995.60 d. $1,091.40 2) If interest r
Chapter 4 Understanding Yield Spreads 1) For two bonds that are alike in all respects except maturity, the relative yield spread is 7.14%. The yield ratio is closest to: a. 92.85 b. .714 c. 1.0714 d. 107.14 2) Assume the following yields for different bon
Chapter3OverviewofBondSectorandInstruments 1) Atreasurysecurityisquotedat9717andhasaparvalueof$100,000.Whichofthe followingisitsquoteddollarprice a. $97,170.00 b. $97,531.25 c. $100,000.00 d. $975,312.50 2) Aninvestmentholds$100,000(parvalue)worthofTreasu
Practice Chapter 3 and 4
Chapter 3 Practice 1 Suppose an investor purchases $10,000 of par value of treasury inflation protection security. The real rate (determined at auction) is 3.8%. a. Assume that at the end of the first six months the CPI-U is 2.4 %
QE will make inflationary waves for investors
By Graham Secker Published: October 13 2010 17:00 | Last updated: October 13 2010 17:00
Once the initial enthusiasm for any renewed bout of quantitative easing wears off, markets are likely to start considerin
SEPTEMBER 24, 2009
Investors Seek Inflation Haven In TIPS Funds But Treasury Securities Tied to Consumer Prices Carry Their Own Risks
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LUTIONS TO PRACTICE QUESTIONS
.4 Ql!9ted
pJ:ice
103% 70'/8 875/16 117%2 1.0325 0.7013 0.8731 1.1709 $1,000 $5,000 $10,000 $100,000
D'51Iar PJiice c
1,032.50 3,506.25 8,731.25 117,093.75
i6-month'I'tilaS1l111;ate
First reset date Second reset date Third re
Chapter 1 - Features of Debt Securities
1. 2. Introduction Definition of a fixed income security concept of borrower and lender (creditor) The promises of the issuer and the rights of the bondholders are set forth in great detail in the bond indenture. Af
LUTIONS TO PRACTICE QUESTIONS
I . Th pric fOI' ISHU A hould be a premium since the coupon rate is greater than the yield required by the market. 0, there is 11 '1'1'01' for Issue A. The price B r Issue B hould be a discount since the coupon rate is less t
Chapter 1 Practice 1 Given the information in the 1st and 3rd columns for the US investor, complete the information in the 2nd and 4th columns: Quoted Price 103 1/4 70 1/8 87 5/16 117 3/32 Practice 2 A floating rate issue has the following coupon formula:
Debate gathers pace on whether corporate bonds are too hot
By Aline van Duyn and Michael Mackenzie Published: September 28 2010 19:21 | Last updated: September 28 2010 19:21
Companies continue to borrow money at eye-poppingly low rates of interest. Last w
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Florida Employee Pension Unfunded L iabilities Grow (Correct) 2010-10-07 14:19:58.206 GMT
(Corrects second, fourth and fifth paragraphs to show asset changes reflect payments of benefits in story published Oct. 4.)
By Simone Baribeau Oct. 4 (Bloomberg
Global economy: That elusive spark
By Chris Giles Published: October 5 2010 20:54 | Last updated: October 5 2010 20:54
Having tried both standard and unorthodox measures to stimulate demand, central bankers and finance ministers faced with a stuttering re
Investors split over the deflation dilemma
By Richard Milne Published: October 14 2010 19:04 | Last updated: October 14 2010 19:04
Investors are torn between two extremes. Is the US heading for a decade of Japan-style stagnation characterised by years of
Chapter 1 Practice 1 Given the information in the 1st and 3rd columns for the US investor, complete the information in the 2nd and 4th columns: Quoted Price 103 1/4 70 1/8 87 5/16 117 3/32 Practice 2 A floating rate issue has the following coupon formula:
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2. 3.
4.
5.
Chapter 4 Understanding Yield Spreads In implementing monetary policy, the fed can use one of the following interest rate policy tools: 1. Open market operations (buying or selling treasuries, fx etc.) 2. Discount rate banks borrow on a col
124
Understanding
Yield Spreads
d. The net payment is equal to the floating-rate payment received by the fixed-rate payer less the fixed-rate payment made by the fixed-rate payer. The quarterly fixed-rate payment is $170,000. In the table below, a negativ
Chapter 3 - Overview of Bond Sectors and Instruments 1. 2. 3. 4. 5. 6. 7. 8. 9.
1.
Internal bond market is also called the national bond market and is divided into domestic and foreign bond market External bond market is also referred to as the Eurobond m
Masters in Financial Analysis
Fall 2010
ECON 722-21 Fixed Income Valuation
2 Units
Course Description and Schedule (subject to change at the discretion of the instructor) Friday: 2:30pm to 6:30pm 300 Montgomery Street, Suite 1130, San Francisco, CA Instru
Chapter 9 Valuing Bonds with Embedded Options
1. 2. 3. 4. 5. 6. 7. 8. Binomial Valuation Model: A binomial model is a relatively single factor interest rate model that, given an assumed level of volatility, suggests that interest rates have an equal proba
1. 2. 3. 4.
5. 6.
7.
1. 2.
Chapter 10 Mortgage-Backed Securities A mortgage is a loan that is collateralized with a specific piece of real property, residential or commercial. Cash flow characteristic of a fixed rate, level payment, fully amortized loan C
SOLUTIONS TO PRACTICE QUESTIONS
1. Losses by bond class Total Loss a. $15 million b. $50 million c. $90 million Senior Bond Class zero zero $30 million Subordinate Bond Class 1 Subordin~!~on,9-Clls~ 2 $15 million zero $20 million $30 million $40 million $
TO PRACTICB QUBSTIONS
.&:I:Jr.:e know that ":.9"/0 yield) 6.1% yield)
= =
136.1193 133.2472
"'=-x:r;.
= 136.1193 -133.2472
=
(134.6722)(0.001)
10 66 .
Ids:n~. err -es
. is the same value computed for duration when a 20 basis point rate shock was used. Dur
1.
1. 2. 3. 4. 5. 6. 7. 8.
Chapter 7 Introduction to Measurement of Interest Rate Risk Full Valuation (scenario analysis) approach for measuring interest rate risk:
Begin with the current market yield and price Estimate hypothetical changes in required yi
1.
1.
Chapter 8 The Term Structure and Volatility of Interest Rates The Yield curve has taken on 3 fundamental shapes:
Normal, Flat and Inverted
2.
1. 2. 3.
Parallel, Non-Parallel, Twist and Curvature of the Yield Curve
Parallel Yield Curve Shift Nonparal
Chapter 7 1) Which of the following statements best describes the concept of negative convexity in bond prices? a. As interest rates fall, the bonds prices increase at a decreasing rate. b. As interest rates fall, the bonds prices increase at an increasin
Practice for Chapter 7 and 8 Chapter 7 Practice 1 a) Compute the duration of a 9% coupon 20-year option free bond by changing the yield down and up by 10 basis points. b) Suppose a 6% coupon 20-year option-free bond is selling at par value and therefore o