Deck 6: Interest Rate Futures 7 Swaps

Question 1

What is the main assumption under the duration-based hedging scheme? _ _ _ _ _ _ _ _ _

Answer 1

It only allows for parallel shift in the term structure.

Question 2

Which of the following is applicable to Australian Commonwealth Government Treasury notes? choose one)

A) Actual/360
B) Actual/Actual
C) 30/360
D) Actual/365

Answer 2

D

Question 3

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? Indicate whether the dollar amount you calculate is an increase or a decrease. _ _ _ _ _ _ _ _ _ _ _ _ _

Answer 3

$2500 decrease

Question 4

The ____________ is used to quote the money market instruments in Australia, whereas a ________ is applied in the United States. As a result, the purchase prices are different in the two countries. Fill in the blanks.)

Question 5

Suppose that the 10-year 90-day bank accepted bill futures price quote is 92.38 and the standard deviation of the change in the yield is 1.4% per annum continuously compounded). Determine the forward rate continuously compounded) by allowing for convexity adjustment. Answer as a per cent with two decimal places. _ _ _ _ _ _ _ _

Question 6

It is May 1. The quoted price of a bond with an actual/actual day count and 12% per annum coupon in the United States is 105. It has a face value of $100 and pays coupons on April 1 and October 1. What is the cash price to two decimal places)? _ _ _ _ _ _

Question 7

A portfolio is worth $24 million. The current futures price for a 10-year Treasury bond futures contract is 94.25 and each contract is for the delivery of $100 000 face value of bonds. The futures contract is for a 10-year 6% per annum semi-annually compounded) coupon bond and the duration will be 6 years at maturity. The duration of the bond portfolio on the delivery date will be 5.5 years. What is the futures contract price answer with up to two decimal places)? How many contracts to the nearest whole number) are necessary to hedge the portfolio? _ _ _ _ _ _ _ _

Question 8

Which of the following is true about the 90-day bank accepted bill futures contract? choose one)

A) The contract is cash settled, rather than settled with delivery of physical securities
B) The contract is not settled daily
C) The interest rate of this futures contract is lower than the corresponding forward interest rate for long maturities
D) This futures contract is used to estimate the forward rates in order to construct a zero curve

Question 9

A company invests $1000 in a five-year zero-coupon bond and $4000 in a ten-year zero-coupon bond. What is the duration of the portfolio? _ _ _ _ _ _