Deck 25: Interest Rate and Bond Derivatives

Question 1

If next year's bond prices for 2-year zero coupon bonds may be either 0.9454 or 0.9233,what is the yield volatility?

A) 18%
B) 16%
C) 14%
D) 12%

Answer 1

A

Question 2

Assume a = 0.25,b = 0.13,r = 0.06,and σ = 0.25.Using the CIR model,calculate the gamma of a zero coupon bond maturing in 3 years.

A) 2.14
B) 2.34
C) 2.54
D) 2.74

Answer 2

D

Question 3

Bonds maturing in 1,2,and 3 years have prices of 0.9345,0.8766,and 0.8212,respectively.What is the price of a call option that expires in two years and gives you the right to pay 0.8600 to buy the 1-year bond? Assume σ = 0.15.

A) $0.015
B) $0.105
C) $0.205
D) $0.305

Answer 3

B

Question 4

Zero-coupon bonds maturing in 1,2,and 3 years have prices of 0.9345,0.8766,and 0.8212,respectively.What is the forward price for a 1-year bond purchased in year 2?

A) 0.6866
B) 0.7234
C) 0.8787
D) 0.9368

Question 5

What is the transaction that results within an interest rate cap to make the holder's rate "capped"?

Question 6

Under what conditions does delta-gamma-theta approximate the exact bond price change?

Question 7

Assume a = 0.10,b = 0.15,r = 0.04 and σ = 0.35.Using the CIR model,calculate the price of a zero coupon bond maturing in 6 years.

A) 0.6042
B) 0.7042
C) 0.8042
D) 0.9042

Question 8

Bonds maturing in 1,2,and 3 years have prices of 0.9600,0.9153 and 0.8620,respectively.A 0.9300 strike call on a 1-year bond matures in 1 year with σ = 0.20.What is the price of an 8.0% interest rate caplet that expires in 1 year?

A) $0.66
B) $0.76
C) $0.86
D) $0.96

Question 9

If next year's bond prices for 3-year zero coupon bonds may be either 0.8923 or 0.8644,what is the yield volatility?

A) 12.7%
B) 13.7%
C) 14.7%
D) 15.7%

Question 10

What is calibration?

Question 11

How does the node configuration in interest rates and bonds differ from stocks?

Question 12

Assume a = 0.15,b = 0.08,r = 0.05,and 0.30.Using the CIR model,calculate the delta of a zero coupon bond maturing in 5 years.

A) -4.08
B) -3.08
C) -2.08
D) -1.08

Question 13

Using base 100 pricing,the price of bonds that mature in years 1,2,3,and 4 is 93.46,92.22,91 98 and 90.23,respectively.Given this data,what is the 2-year forward price for a 2-year bond?

A) 97.84
B) 98.92
C) 99.74
D) 160.45

Question 14

Using base 100 pricing,the price of bonds that mature in years 1,2,and 3 is 101.92,100.87,and 99.34,respectively.Given this data,what is the 2-year forward price for a 1-year bond?

A) 98.48
B) 99.34
C) 100.22
D) 100.87

Question 15

A series of 1-year interest rate caplets for 4 years have values of $0.05,$0.07,$0.08,and $0.10,respectively.What is the value of a 3-year interest rate cap?

A) $0.08
B) $0.12
C) $0.20
D) $0.30

Question 16

Bonds maturing in 1,2,and 3 years have prices of 0.9323,0.8762,and 0.8002,respectively.A 0.8900 call on a 1-year bond matures in 1 year with σ = 0.25.What is the price of a 10.0% interest rate caplet that expires in 1 year?

A) $0.50
B) $0.60
C) $0.70
D) $0.80

Question 17

Bonds maturing in 1,2,and 3 years have prices of 0.9020,0.8320,and 0.7620,respectively.What is the price of a put option that expires in 1 year that gives you the right to sell a 1-year bond for a price of 0.9200? Assume σ = 0.18.

A) $0.35
B) $0.25
C) $0.15
D) $0.05

Question 18

Describe the effectiveness of duration as a tool in hedging bonds.

Question 19

The price of a bond that matures in 1 year is 103.34,using base 100 pricing.The price of a bond that matures in two years is 101.90,using base 100 pricing.What is the 1-year bond forward price in year 1?

A) 98.56
B) 98.61
C) 101.90
D) 103.34

Question 20

Zero-coupon bonds maturing in 1,2,and 3 years have prices of 0.9020,0.8320,and 0.7620,respectively.What is the implied forward rate from year 2 to year 3?

A) 7.94%
B) 9.19%
C) 09.68%
D) 10.21%

Question 21

What are the various models in bond pricing and behavior? Ask students to describe the various models along with an explanation of each model's strengths and weaknesses.