Free Exam I: Finance Theory, Financial Instruments, Financial Markets – 2015 Edition Exam 8006 Exam Practice Test

A futures clearing house:

• provides a dispute settlement forum for the buyers and sellers
• guarantees the obligations associated with physical delivery
• guarantees the cash settlement of a futures contract
• all of the above

A 15 year bond is trading at par. Its modified duration is 11 years and convexity is 80. Determine the price of the bond following a 10 basis point increase in interest rates

• $98.90
• $101.104
• $101.096
• $98.904

The cheapest to deliver bond for a treasury bond futures contract is the one with the :

• the lowest yield to maturity adjusted by the conversion factor
• the lowest coupon
• the lowest basis when comparing cash price to the futures spot price adjusted by the conversion factor
• the highest coupon

It is January and an Australian importer needs to pay USD 1,120,000 at the end of August to a US creditor. If a AUD/USD futures contract is trading on the exchange at a futures price of 0.6750 (ie, 1 AUD = 0.6750 USD), and the contract size is USD 100,000, what would represent an appropriate hedge?

• Buy 17 contracts to the September expiry date which are closed out in August at the end of August.
• Buy 11 contracts to the September expiry date which are closed out in August at the end of August.
• Buy 11 contracts to the September expiry date and receive delivery of USDs in September
• Sell 11 contracts to the September expiry date and make delivery of USDs in September

Which of the following is not a money market security

• Treasury notes
• Treasury bills
• Bankers' acceptances
• Commercial paper

The most risky tranche of a structured credit derivative is called:

• the risky tranche
• the senior tranche
• the equity tranche
• the mezzanine tranche

According to the CAPM, the beta of a risky asset depends upon:

• the risk-free rate and the risky asset's market risk premium
• the return expected by investors for holding the risky asset
• covariance between the market portfolio and the risky asset; and the variance of the market portfolio
• all of the above

Callable corporate bonds:

• generally yield less than non-callable bonds due to the call feature
• need to be priced lower than non-callable bonds to make them attractive to investors
• are more convex than their non-callable counterparts
• are generally called when their prices have fallen below the issuance price

Which of the following best describes a 'when-issued' market?

• where members of the syndicate bringing a bond issue to the market are obliged to not undercut the issue price till the first settlement date
• The when-issued market is one where dealers trade in a security after its price has been set but before the bonds are available for delivery
• The when-issued market is one where securities are traded on the OTC forward markets prior to their issue
• The when-issues market is one where the lead manager agreed to buy an entire bond issue at an agreed price, and having done so may sell them onwards to institutional or other investors

A bond has a Macaulay duration of 6 years. The yield to maturity for this bond is currently 5%. If interest rates rise across the curve by 10 basis points, what is the impact on the price of the bond?

• Increase of 57 basis points
• Decrease of 57 basis points
• Increase of 10 basis points
• Decrease of 10 basis points