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Online Quiz 2
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Description
Instructions
Multiple Attempts This Test allows 3 attempts. This is attempt number 2.
Force Completion This Test can be saved and resumed later.
Question 1
10 points
Question 2
10 points
Which of the following are important differences between the theoretical concept of the term structure of
interest as we've discussed it in class, and the zero-coupon interest rates of government bonds we use to
approximate it, e.g. in slide two of lecture two?
A. Real world zero-coupon bonds have at least some default risk.
B. Real world zero-coupon interest rates are typically expressed in nominal rather than real terms, i.e. they
include an inflation part.
C. Zero-coupon bonds are not traded in Australia.
D. A and B
E. A and C
F. All of the above
Question 3
10 points
y2 = 5%
y3 = 9%
y4 = 10%
y5 = 11%
What is the arbitrage-free forward rate between times 2 and 4, f ? Give your answer in percentage units with
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two decimal points, e.g. answer 6.34 if you think the forward rate is 0.06342.
Test/Surv ey Status
Question 4
10 points
The expectations theory of the term structure of interest rates states that
forward rates are market expectations of future interest rates.
forward rates may exceed market expectations of future interest rates.
yields on bonds with different times to maturity are determined by the
supply and demand for the securities.
A and B.
A, B and C.
Question 5
10 points
Question 6
10 points
Which of the following are valid reasons why the yield on bonds with long
times to maturity may include a liquidity premium?
Encourage investors with short investment horizons to invest in long
maturity bonds
Investors face uncertain holding period returns due to liquidity risk
Investors are risk averse
All of the above
B and C
Question 7
10 points
Suppose you have an investment horizon of 3 years and hold a 5 year zero-coupon bond. You would be
facing:
A. Reinvestment risk
B. Liquidity risk
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C. A and B
D. None of the above
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Question 8
10 points
Suppose you want to find the arbitrage-free forward rate between time 1 and 2, f . What information would
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be sufficient?
A - The price of a two-year bond with an annual coupon payment of $10 and a face value of $100.
B - The price of a two-year bond with an annual coupon payment of $20 and a face value of $100.
C - The price of a one-year zero-coupon bond with a face value of $100.
1. A and B
2. A and C
3. B and C
4. Any of the above combinations.
5. None of the above combinations
Question 9
10 points
Question 10
10 points
One way of interpreting the term structure of interest rates is that it shows
the relationship between:
the yield on zero-coupon bonds and the duration of those bonds.
the coupon rates of bonds and time to maturity of those bonds.
the yield on zero-coupon bonds and the time to maturity of those bonds.
All of the above.
None of the above.
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