1.

Ceteris paribus, the duration of a bond is positively correlated with the bond's _______________________.

a. time to maturity.

b. coupon rate

c. YTM

d. All of the above

e. None of the above.

2. T/F: A CDS is designed to transfer the credit exposure of fixed income products between parties, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third-party debt if this party defaults on the loan. It is considered insurance against non-payment. A buyer of one might be speculating on the possibility that the third party will indeed default.

3. T/F: In a CDS, the issuer of the debt instrument is known as the reference entity.

4. T/F: A CDS is a standardized contract that could be used by parties to trades of a credit derivatives contract.

5. T/F: A CDO is a financial instrument where the underlying pool of debt obligations consists of bond-type instruments (corporate and emerging market bonds).

6. The word ____________ is used to describe a security that can be split up into smaller pieces and subsequently sold to investors and are commonly used with mortgage-backed securities.