Chapter 6 Interest Rate Futures

1)
Which of the following is applicable to corporate bonds in the United States?
A)
Actual/360
B)
Actual/Actual
C)
30/360
D)
Actual/365

2)
It is May 1. The quoted price of a bond with an Actual/Actual (in period) day
count and 12% per annum coupon in the United States is 105. It has a face value
of 100 and pays coupons on April 1 and October 1. What is the cash price?
A)
106.00
B)
106.02
C)
105.98
D)
106.04

3)
It is May 1. The quoted price of a bond with a 30/360 day count and 12% per
annum coupon in the United States is 105. It has a face value of 100 and pays
coupons on April 1 and October 1. What is the cash price?
A)
106.00
B)
106.02
C)
105.98
D)
106.04

4)
The most recent settlement bond futures price is 103.5. Which of the following
four bonds is cheapest to deliver?
A)
Quoted bond price = 110; conversion factor = 1.0400
B)
Quoted bond price = 160; conversion factor = 1.5200
C)
Quoted bond price = 131; conversion factor = 1.2500
D)
Quoted bond price = 143; conversion factor = 1.3500

5)
Which of the following is NOT an option open to the party with a short position
in the Treasury bond futures contract?
A)
The ability to deliver any of a number of different bonds
B)
The wild card play
C)
The fact that delivery can be made any time during the delivery month
D)
The interest rate used in the calculation of the conversion factor

6)
A trader enters into a long position in one Eurodollar futures contract. How
much does the trader gain when the futures price quote increases by 6 basis
points?
A)
$6
B)
$150
C)
$60
D)
$600
7)
A company invests $1,000 in a five-year zero-coupon bond and $4,000 in a
ten-year zero-coupon bond. What is the duration of the portfolio?
A)
6 years
B)
7 years
C)
8 years
D)
9 years

8)
The modified duration of a bond portfolio worth $1 million is 5 years. By
approximately how much does the value of the portfolio change if all yields
increase by 5 basis points?
A)
Increase of $2,500
B)
Decrease of $2,500
C)
Increase of $25,000
D)
Decrease of $25,000

9)
A portfolio is worth $24,000,000. The futures price for a Treasury note futures
contract is 110 and each contract is for the delivery of bonds with a face
value of $100,000. On the delivery date the duration of the bond that is
expected to be cheapest to deliver is 6 years and the duration of the portfolio
will be 5.5 years. How many contracts are necessary for hedging the portfolio?
A)
100
B)
200
C)
300
D)
400

10)
Which of the following is true?
A)
The futures rates calculated from a Eurodollar futures quote are always less
than the corresponding forward rate
B)
The futures rates calculated from a Eurodollar futures quote are always greater
than the corresponding forward rate
C)
The futures rates calculated from a Eurodollar futures quote should equal the
corresponding forward rate
D)
The futures rates calculated from a Eurodollar futures quote are sometimes
greater than and sometimes less than the corresponding forward rate

11)
How much is a basis point?
A)
1.0%
B)
0.1%
C)
0.01%
D)
0.001%

12)
Which of the following day count conventions applies to a US Treasury bond?
A)
Actual/360
B)
Actual/Actual (in period)
C)
30/360
D)
Actual/365
13)
What is the quoted discount rate on a money market instrument?
A)
The interest rate earned as a percentage of the final face value of a bond
B)
The interest rate earned as a percentage of the initial price of a bond
C)
The interest rate earned as a percentage of the average price of a bond
D)
The risk-free rate used to calculate the present value of future cash flows
from a bond

14)
Which of the following is closest to the duration of a 2-year bond that pays a
coupon of 8% per annum semiannually? The yield on the bond is 10% per annum
with continuous compounding.
A)
1.82
B)
1.85
C)
1.88
D)
1.92

15)
Which of the following is NOT true about duration?
A)
It equals the years-to-maturity for a zero coupon bond
B)
It equals the weighted average of payment times for a bond, where weights are
proportional to the present value of payments
C)
Equals the weighted average of individual bond durations for a portfolio, where
weights are proportional to the present value of bond prices
D)
The prices of two bonds with the same duration change by the same percentage
amount when interest rate move up by 100 basis points

16)
The conversion factor for a bond is approximately
A)
The price it would have if all cash flows were discounted at 6% per annum
B)
The price it would have if it paid coupons at 6% per annum
C)
The price it would have if all cash flows were discounted at 8% per annum
D)
The price it would have if it paid coupons at 8% per annum
17)
The time-to-maturity of a Eurodollars futures contract is 4 years, and the
time-to-maturity of the rate underlying the futures contract is 4.25 years. The
standard deviation of the change in the short term interest rate, ? = 0.011.
What is the difference between the futures and the forward interest rate?
A)
0.105%
B)
0.103%
C)
0.098%
D)
0.093%
18)
A trader uses 3-month Eurodollar futures to lock in a rate on $5 million for
six months. How many contracts are required?
A)
5
B)
10
C)
15
D)
20
19)
In the U.S. what is the longest maturity for 3-month Eurodollar futures
contracts?
A)
2 years
B)
5 years
C)
10 years
D)
20 years

20)
Duration matching immunizes a portfolio against
A)
Any parallel shift in the yield curve
B)
All shifts in the yield curve
C)
Changes in the steepness of the yield curve
D)
Small parallel shifts in the yield curve