F420 Exam

Practice Final Exam – F420 – Spring 2012

(Only includes the fixed income section. Refer to other practice midterms for

earlier material)

1. The "modified duration" used by practitioners is equal to the Macaulay duration

A. times the change in interest rate.

B. times (one plus the bond's yield to maturity).

C. divided by (one minus the bond's yield to maturity).

D. divided by (one plus the bond's yield to maturity).

E. none of the above.

2. The following is a list of prices for zero coupon bonds with different maturities and par value

of $1,000.

What is, according to the expectations theory, the expected forward rate in the third year?

A. 7.00%

B. 7.33%

C. 9.00%

D. 11.19%

E. none of the above

3. An inverted yield curve implies that:

A. Long-term interest rates are lower than short-term interest rates.

B. Long-term interest rates are higher than short-term interest rates.

C. Long-term interest rates are the same as short-term interest rates.

D. Intermediate term interest rates are higher than either short- or long-term interest rates.

E. none of the above.

4.. A bond will sell at a discount when __________.

A. the coupon rate is greater than the current yield and the current yield is greater than yield to

maturity

B. the coupon rate is greater than yield to maturity

C. the coupon rate is less than the current yield and the current yield is greater than the yield to

maturity

D. the coupon rate is less than the current yield and the current yield is less than yield to maturity

E. none of the above are true.

5. A coupon bond that pays interest semi-annually is selling at par value of $1,000, matures in 7

years, and has a coupon rate of 8.6%. The yield to maturity on this bond is:

A. 8.0%

B. 8.6%

C. 9.0%

D. 10.0%

E. none of the above

6.. You have just purchased a 7-year zero-coupon bond with a yield to maturity of 11% and a par

value of $1,000. What would your rate of return at the end of the year be if you sell the bond?...