Multiple Choice
1.A trader going long Treasury bond futures expects
a.the yield curve to become more downward sloping.
b.the yield curve to become more upward sloping.
c.long term interest rates to rise.
d.long term interest rates to decline.
2.If interest rates fall, the value of a Treasury bill futures contract will
a.rise.
b.fall.
c.remain unchanged because of contract definition.
d.remained unchanged since T bill rates are fixed at issuance.
3.The most important intermediate term interest rate futures contract is on ___________.
a.Treasury bills
b.Eurodollars
c.Treasury notes
d.Treasury bonds
4.A Eurodollar is a dollar denominated deposit
a.outside the United States.
b.in Europe.
c.in Europe or North America.
d.in Europe, Asia, or the Pacific Basin.
5.A $10,000 6 month T bill sells for $9,800. What is its annualized yield to maturity?
a.2.04%
b.4.08%
c.6.12%
d.6.66 %
6.A T bill futures contract calls for the delivery of
a.$100,000 of 60 day T bills.
b.$100,000 of 90 day T bills.
c.$1 million of 60 day T bills.
d.$1 million of 90 day T bills.
7.If someone had a need to lock in a short term investment rate, they would be most likely to
a.buy T bill futures.
b.sell T bill futures.
c.buy T note futures.
d.sell T note futures.
8.Treasury bonds
a.are not callable.
b.may be callable after 10 years.
c.may be callable after 15 years.
d.are always callable after 5 years.
9.An adjustment factor is used to convert a T bond to a bond yielding _______.
a.6%
b.7%
c.8%
d.9%
10.Which is the correct formula for invoice price?
a.(settlement price/conversion factor) accrued interest
b.(settlement price * conversion factor) + accrued interest
c.(settlement price/conversion factor) + accrued interest
d.(settlement price * conversion factor) accrued interest
11.When long term interest rates are above 6%, the cheapest to deliver bond has
a.the highest duration.
b.the lowest duration.
c.duration equal to 15.0.
d.the highest yield to maturity.
12.If interest rates are expected to rise, the portfolio manager might logically
a.raise duration.
b.lower duration.
c.lower average yield.
d.lower average bond rating.