1.What type of interest rate does plain "vanilla" bond typically pay:

A.Fixed

B.Zero

C.Floating

2.Which of the following statements about duration is correct?

A. a bond's effective duration is a measure of yield duration

B.a bond's modified duration cannot be larger than its Macaulay duration

C. a bond's modified duration is a measure of curve duration

3.All else equal, if a AA rated corporate bond undergoes a downgrade in credit rating you would expect that the bond yield for this company would most likely:

A. Decrease

B. Decrease

C. Stay the same

4.When computing the yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the:

A. Yield to maturity at the time of investment

B. Coupon rate

C. Current prevailing yield to maturity at the time interest payments are received

5.Given the following information: value of a normal bond is $92, value of the option is $2, and the value of bond with embedded option is $90, the embedded option is most likely:

A. Option free

B. Call option

C. Put option

6.Which of the following embedded option(s) is/are granted to the issuer?

A.Callable bond

B.Puttable bond

C.Both callable and puttable bonds

7.An investor buys a 6% annual payment bond with 3 years to maturity. The bond has a yield-to-maturity of 7%. The bond's modified duration is closest to:

A. 2.73

B. 2.83

C. 2.65

8.Foreign bond is denominated in:

A. Euros

B. Home currency of the country in which it is issued

C. A currency other than the home currency of the country in which it is issued

9.If investors are increasingly pessimistic about the economy, what is the most likely impact on credit spreads?

A. There will be no change to credit spreads. Equity markets work independently from fixed-income markets.

B. Wider spreads will occur. Investors will move out of equity markets into debt markets.

C. Narrower spreads will occur. Investors are less concerned about creditworthiness.

10.Which of the following credit risk model performs best in measuring a debt issue's default probability?

A. Reduced form model

B. Credit rating

C. Structural model

11.Which forward rate can be computed from the 1-, 2-, 3-, and 4-year spot rates? The rate for a:

A. 1-year loan beginning in 3 years

B. 4-year loan beginning in 1 year

C. 3-year loan beginning in 2 years

12.If theoretical spot rate curve lies below the par yield curve, then the curve is?

A. upward sloping

B. downward sloping

C. flat

13. Assume that bond ABC and XYZ have the same maturity and the coupon rate of one bond is 5% and the second 13%. The yield curve for this issuer is flat at 8%. Based on this information, which bond is the lower coupon bond and which is the higher coupon bond?

Estimated percentage change in price if interest rates change by:

-50 basis points +50 basis points

Bond ABC +12% -9%

Bond XYZ +11% -8%

A. ABC is the lower coupon bond, XYZ is the higher coupon bond

B. ABC is the higher coupon bond, XYZ is the lower coupon bond

C. There is not enough information to tell