QUESTION 25

1. A Eurodollar deposit is:

   		a deposit denominated in euros at a US bank
   		a deposit denominated in dollars at a bank outside the US
   		a deposit denominated in dollars in the US by a European company
   		deposits issued by banks in order to make loans to Europeans
   		deposits in US dollars made by Europeans in banks in the US

2 points

QUESTION 26

1. A hedge fund manager is of the opinion that ten-year interest rates are about to decrease. Which of the following strategies are appropriate? Choose two; 1 point each

   		Purchase a ten-year Treasury bond in the cash market, borrowing the funds via a repurchase agreement.
   		Selling short a ten-year Treasury bond in the cash market, acquiring the bond to do so via a reverse repurchase agreement.
   		Entering into a ten-year interest rate swap contract to pay the fixed interest rate and receive the floating rate.
   		Entering into a ten-year interest rate swap contract to pay the floating interest rate and receive the fixed rate.

2 points

QUESTION 27

1. Consider two US Treasury bonds, one with a 5-year maturity, the other a 10-year. The first is priced at par. Assume an upward sloping yield curve. If the 10-year is at par:

   		its coupon must equal that of the 5-year.
   		its coupon must be below that of the 5-year
   		its coupon must exceed that of the 5-year.

2 points

QUESTION 28

1. When a bank borrows in the federal funds market, this means: 3 points

   		it is borrowing from the US Treasury
   		it is borrowing from the Federal Reserve
   		it is lending to the Federal Reserve
   		it is borrowing from another bank

3 points

QUESTION 29

1. Compared to a 30-year government bond, the duration of a 30-year mortgage with the same coupon is:

   		shorter
   		longer
   		the same

2 points

QUESTION 30

1. A "level pay" mortgage means:

   		the monthly payment keeps rising until it reaches a preset level.
   		the monthly payment is the same every month, even the final
   		the principal payment portion of the monthly payment is the same every month, incusing the final
   		no principal is included in the monthly payment, even the final

2 points

QUESTION 31

1. What will cause the price of a fixed-coupon corporate bond to change (all else the same)?

   		a change in government bond interest rates
   		a change in the market's required credit spread for the company's debt
   		either of these
   		neither of these

2 points

QUESTION 32

1. Which of the following are correct regarding the frequency of compounding? Choose Two; 1 point each

   		The more frequent, the lower the present value of a fixed future cash flow
   		The more frequent, the greater the present value of a fixed future cash flow
   		The more frequent, the more that needs to be invested now in order to achieve a given future cash flow
   		The more frequent, the less that needs to be invested now in order to achieve a given future cash flow

2 points

QUESTION 33

1. A company is about to issue a Floating Rate Note, whose coupon will equal a reference (index) rate plus a spread. Which of the following is true? Choose two; 2 points each

   		The spread depends on investors' current view of the company's credit risk and then remains fixed?
   		The spread depends on investors' current view of the company s credit risk and changes as these views change
   		The reference rate floats until the note matures.
   		The price is fixed until the note matures.
   		The reference rate is fixed until the note matures.

4 points

QUESTION 34

1. An interest rate swap with a notional amount of $20 million began April 30. A is the fixed rate payer of 4%, B the floating rate payer of 6-month LIBOR. The following are 6-mo LIBOR rates set on the noted dates: April 30 3.5% October 30 3.75% April 30 2022 3.875% How much does A receive (approximately) on April 30 2022?

   		.04x20,000,000/2
   		.035x20,000,000/2
   		.0375x20,000,000/2
   		.03875x20,000/2
   		.035x20,000,000/4
   		.035x20,000,000

2 points

QUESTION 35

1. A 30-year (fixed coupon) bond is priced above par. You may infer that its yield-to-maturity is ____ the coupon rate

   		below
   		above
   		equal to

2 points

QUESTION 36

1. A GNMA pass-thru security is currently priced at 98. If investors reassess and change their expectations such that the pool of mortgagees in the security will prepay more slowly than originally thought, the price of the bond will:

   		decrease
   		increase
   		not change

2 points

QUESTION 37

1. A 5% coupon bond matures in ten years, but is callable after five. Which of the following is true? Choose two. 1 point each

   		Calling the bond requires the investor to pay more money
   		Calling the bond means the issuer needs to pay off the remaining principal
   		After five years, the issuer must call the bond
   		The investor may not sell the bond for the first five years
   		A 5% ten year non-callable bond from the same issuer has a lower yield

2 points

QUESTION 38

1. The yield curve is upward sloping throughout. You may conclude that:

   		market participants expect real interest rates to rise
   		market participants expect inflation to accelerate
   		market participants expect nominal interest rates to rise

2 points

QUESTION 39

1. An investor owns a 10-yr FRN issued by company QQQ paying LIBOR + 0.75%. If she enters a 10-yr IRS as a fixed rate receiver, she is:

   		An investor owns a 10-yr FRN issued by company QQQ paying LIBOR + 0.75%. If she enters a 10-yr IRS as a fixed rate receiver, she is:
   		transforming her exposure from floating rate to fixed rate and maintains her credit risk exposure from QQQ
   		transforming her exposure from fixed rate to floating rate and no longer has credit risk exposure from QQQ
   		transforming her exposure from fixed rate to floating rate and maintains her credit risk exposure from QQQ