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Question 1 (15 points) Assume that R(0,1) =5%. Also assume that there is a 2 years 6% coupon bond that trades at 105. What is the zero coupon rate R(0,2)? Question 1 options: 2.837% 5.000% 3.326% 3.457 Save Question 2 (15 points) Question options: Assume that R(0,2) = 4% and R(0,4)= 5%. The price of a three year zero coupon bond with face value 100 is Question 2 options: 88.90 95.69 86.38 87.63 Save Question 3 (15 points) In the context of of cubic interpolation as discussed in class, in order to find the cubic interpolating line one must Question 3 options: solve a cubic system. solve a linear system where the unknow variable is time. select four rates. must solve a linear system in two equations a two varibles. Save Question 4 (15 points) Models of the zero coupon yield curve based on cubic splines may be preferred to other indirect methods for recovering the term structure because of their flexibility. Question 4 options: True False Save Question 5 (15 points) Consider a bond P with 4 year maturity, 6% coupon annually paid, yield to maturity 7%. The correct expression for the bond pricing function is Question 5 options: Save Question 6 (15 points) a generic bond pricing function as discussed in class. Dollar duration is: Question 6 options: How long it takes on average to get the bond payments back. A measure interest rate risk as captured by the slope of the yield curve The slope of the bond pricing function. The second order derivative of the bond pricing fuction at certain level of the yield y Save Question 7 (15 points) Consider a bond with maturity 4 year, 100 face value, coupon 5%, and yield 5%. Numerically computed dollar duration using a dy =0.001% is approximately equal to Question 7 options: 354 355 3545 35 Save Question 8 (15 points) Duration captures one important aspects of interest rate risk. Namely... Question 8 options: The price risk deriving from a large shift in the term structure. The price risk deriving from a twist movement in the term structure. The price risk deriving from a butterfly movement in the term structure. The price risk deriving from a small shift in the yield term structure. Save Question 9 (15 points) Assume that there is a bond that pays $50 at the and of year 1 and $50 at the end of year 2. It sells at $100. The Macauley duration of the bond is Question 9 options: 0 1 1.5 2 Save Question 10 (15 points) Assume that you manage a bond portfolio. The Dollar duration of the portfolio is -6710000. An instrument is traded with dollar duration equal to -1342. To make the portfolio duration neutral you need to... Question 10 options: Buy 1342 units of the hedging instrument. Short sell 5000 units of the hedging instrument. Short sell 1342 units of the hedging instrument. Buy 5000 units of the hedging instrument. Save