1) Corporate Bonds & Municipals use 30/360 day count convetion and Money Market instruments use Actual/Actual.

Select one:

True

False

2)

Company XYZ enters into an FRA with Company ABC in which Company XYZ will receive a fixed rate of 5% on a principal amount of $5 million for 3 months starting in one year. In return, Company ABC will receive the one-year LIBOR rate on the principal amount. The agreement will be settled in cash in a payment made at the beginning of the forward period, discounted by an amount calculated using the contract rate and the contract period.

Assume the following data:

The forward rate for the period (FRA) = 3.5%

Suppose the LIBOR rate (with quarterly compounding) = 4%

What will be the payoff to the Company ABC?

Select one:

a. The payoff is $6188 at the 1.25 year point

b. The payoff is $6250

c. The payoff is $6188

d. The payoff is - $6250

e. The payoff is $5m

3)

The maximum loss a buyer of a put option can suffer is equal to

Select one:

a. the put premium.

b. the striking price minus the stock price.

c. the stock price.

d. None of these is correct.

e. the stock price minus the value of the call.