1. Which of following describes forward rates?

a. A single discount rate that gives the value of a bond equal to its market price when applied to all cash flows

b. Interest rate earned on an investment that starts today and lasts for n-years in the future without coupons

c. The coupon rate that causes a bond price to equal its par (or principal) value.

d. Interest rates implied by current zero rates for future periods of time.

2. The extra amount added to a risk-free interest rate to allow for credit risk is known as a the zero rate

True

False

3. Treasury rates are the rates an investor earns on Treasury bills and Treasury bonds

True

False

4. An interest rate is 5% per annum with continuous compounding. What is the equivalent rate with semiannual compounding?

a. 4.94%

b. 4.97%

c. 5.03%

d. 5.06%

5. Continuously compounded interest rates are used to such a great extent in pricing derivatives

True

False

6. An interest rate is 12% per annum with semiannual compounding. What is the equivalent rate with quarterly compounding?

a. 11.83%

b. 11.92%

c. 11.66%

d. 11.77%

7. The extra amount added to a risk-free interest rate to allow for credit risk is known as a credit spread

True

False

8. As we compound more and more frequently, we obtain continuously compounded interest rates

True

False

9. As the compounding frequency increases, the rate of return decreases

True

False

10. A zero rate is the rate of interest earned on an investment that provides a payoff several times during its life

True

False