Chapter 6 Interest Rate Futures

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