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QUESTION 1 Company X and Company Y have been offered the following rates:   Fixed Rate Floating Rate Company X 3

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QUESTION 1

1. Company X and Company Y have been offered the following rates:

	Fixed Rate	Floating Rate
Company X	3.5%	3-month LIBOR plus 10 bp
Company Y	4.5%	3-month LIBOR plus 30 bp

Suppose that Company X borrows fixed and company Y borrows floating. If they enter into a swap with each other where the apparent benefits are shared equally, what is company X's effective borrowing rate?

	a.	3-month LIBOR−30 bp
	b.	3.1%
	c.	3-month LIBOR−10 bp
	d.	3.3%

10 points   

QUESTION 2

1. An ultra T-bond futures contract is one where

	a.	Bonds with maturities less than 3 years can be delivered.
	b.	Bonds with maturities less than 10 years can be delivered.
	c.	Bonds with maturities greater than 15 years can be delivered.
	d.	Bonds with maturities greater than 25 years can be delivered.

10 points   

QUESTION 3

1. Which of the following describes the five-year swap rate?

	a.	The rate on a five-year loan to a AA-rated company
	b.	The rate on a five-year loan to an A-rated company
	c.	The rate that can be earned over five years from a series of short-term loans to AA-rated companies
	d.	The rate that can be earned over five years from a series of short-term loans to A-rated companies

10 points   

QUESTION 4

1. The reference entity in a credit default swap is

	a.	The buyer of protection
	b.	The seller of protection
	c.	The company or country whose default is being insured against
	d.	None of the above

10 points   

QUESTION 5

1. A bank enters into a 3-year swap with company X where it pays LIBOR and receives 3.00%. It enters into an offsetting swap with company Y where is receives LIBOR and pays 2.95%. Which of the following is true?

	a.	If company X defaults, the swap with company Y is null and void.
	b.	If company X defaults, the bank will be able to replace company X at no cost.
	c.	If company X defaults, the swap with company Y continues.
	d.	The bank's bid-offer spread is 0.5 basis points.

10 points   

QUESTION 6

1. Which of following is applicable to corporate bonds in the United States?

	a.	Actual/360
	b.	Actual/Actual
	c.	30/360
	d.	Actual/365

10 points   

QUESTION 7

1. A portfolio is worth $24,000,000. 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 and the duration of the portfolio will be 5.5 years. How many contracts are necessary for hedging the portfolio?

	a.	100
	b.	200
	c.	300
	d.	400

10 points   

QUESTION 8

1. A trader uses 3-month Eurodollar futures to lock in a rate on $5 million for six months. How many contracts are required?

	a.	5
	b.	10
	c.	15
	d.	20

10 points   

 

 

QUESTION 9

It is May 1. The quoted price of a bond with a 30/360-day count and 12% per annum coupon in the United States is 105. It has a face value of 100 and pays coupons on April 1 and October 1. What is the cash price?

	a.	106.00
	b.	106.02
	c.	105.98
	d.	106.04

10 points   

QUESTION 10

It is May 1. The quoted price of a bond with an Actual/Actual (in period) day count and 12% per annum coupon (paid semi-annually) in the United States is 105. It has a face value of 100 and pays coupons on April 1 and October 1. What is the cash price?

	a.	106.00
	b.	106.02
	c.	105.98
	d.	106.04