A Swiss bank converted 5 million Swiss francs to euros to make a euro loan to a customer when the exchange rate was 1.20 Swiss francs per euro. The borrower agreed to repay the principal plus 3.75 percent interest in one year. The borrower repaid euros at loan maturity and when the loan was repaid the exchange rate was 1.25 Swiss francs per euro. What was the Swiss bank's rate of return?

Select one:

a.

6.94 percent

b.

-0.40 percent

c.

-1.83 percent

d.

7.04 percent

e.

8.07 percent

A zero percent annual coupon corporate bond with four years to maturity and yield to maturity of 8 percent has a duration of _______________ years.

Select one:

a.

3.85

b.

4.00

c.

3.71

d.

4.12

e.

3.97

The ___________ the coupon and the ______________ the maturity; the __________ the duration of a bond, ceteris paribus.

Select one:

a.

larger; longer; shorter

b.

larger; shorter; shorter

c.

larger; longer; longer

d.

smaller; shorter; longer

An MBB differs from a CMO or a pass-through in that I. a MBB does not result in the removal of mortgages from the balance sheet. II. a MBB holder has no prepayment risk. III. cash flows on a MBB are not directly passed through from mortgage holders.

Select one:

a.

I only

b.

I, II, and III

c.

II and III only

d.

I and II only

e.

I and III only