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OFOD7 e Test Bank CH 06

This document is a test bank containing questions related to corporate bonds, Treasury bonds, Eurodollar futures, and hedging strategies. It includes multiple-choice questions and calculations regarding bond pricing, futures contracts, and interest rates. The questions assess knowledge of bond market mechanics and trading strategies.

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D Ho
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18 views2 pages

OFOD7 e Test Bank CH 06

This document is a test bank containing questions related to corporate bonds, Treasury bonds, Eurodollar futures, and hedging strategies. It includes multiple-choice questions and calculations regarding bond pricing, futures contracts, and interest rates. The questions assess knowledge of bond market mechanics and trading strategies.

Uploaded by

D Ho
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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CHAPTER 6

Test Bank

1. Which of following is applicable to corporate bonds in the United States (circle one)

(a) Actual/360

(b) Actual/Actual

(c) 30/360

(d) Actual/365

2. It is May 1. The quoted price of a 12% Treasury bond in the United States is 105. It has a face value of
100 and pays coupons on April 1 and October 1 is 105. What is the cash price? ………….

3. What difference does it make to your answer to question 2 if the bond is a corporate bond? …………

4. The quoted Treasury Bond futures price is 103.5. Which of the following four bonds is cheapest to
deliver (circle one)

(a) Quoted price = 110; conversion factor = 1.0400.

(b) Quoted price = 160; conversion factor = 1.5200.

(c) Quoted price = 131; conversion factor = 1.2500.

(d) Quoted price = 143; conversion factor =1.3500

5. Which of the following is NOT an option open to the party with a short position in the Treasury bond
futures contract (circle one)

(a) The ability to deliver any of a number of different bonds

(b) The wild card play

(c) The fact that delivery can be made any time during the delivery month
(d) The interest rate used in the calculation of the conversion factor

6. A trader enters into a long position in one Eurodollar futures contract. How much does the trader gain
or lose when the futures price quote increases by 6 basis points……….

7. The six-month zero rate with continuous compounding is 5%. The Eurodollar futures quote for a
contract maturing in six months is 94. Estimate the nine month zero rate with continuous compounding.
(Ignore convexity adjustments and day count issues.) ………

8. Which of the following positions is best suited to potentially profit from an increase in short-term
rates (circle one)

(a) A short position is taken in a Treasury bond futures.

(b) A short position is taken in a Eurodollar futures.

(c) A long position is taken in a Treasury bond futures.

(d) A long position is taken in a Eurodollar futures.

9. A portfolio is worth 24,000,000 and has a duration of 5.5 years. The futures price for a Treasury note
futures contract is 110 and each contract is for the delivery of bonds with a face value of $100,000. On
the delivery date the duration of the bond that is expected to be cheapest to deliver is 6 years. How
many contracts are necessary for hedging the portfolio? …………..

10. Which of the following is true (circle one)

(a) The futures rates calculated from a Eurodollar futures quote is always less than the corresponding
forward rate

(b) The futures rates calculated from a Eurodollar futures quote is always greater than the
corresponding forward rate

(c) The futures rates calculated from a Eurodollar futures quote should equal the corresponding forward
rate

(d) The futures rates calculated from a Eurodollar futures quote is sometimes greater than and
sometimes less than the corresponding forward rate

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