Given a 10-year time horizon, the reinvestment rate risk is LOWEST for a: a) 4-year, 5% coupon bond b) 8-year, 8% coupon bond c) 5-year, zero-coupon…

a) 1.74%
b) 3.36%
c) 4.51%
d) 7.16%
4.) According to liquidity preference theory, which of the following statements is FALSE?
a) All else equal, investors prefer short-term securities over long-term securities
b) Long-term rates should be higher than short-term rates because of the added risks
c) Investors perceive little risk differential between short-term and long-term securities
d) Borrowers will pay a premium for long-term funds to avoid having to roll over short-term debt
5.) For the YTM to equal to actual compound return an investor realizes on an investment in a coupon bond, we must assume all of the following EXCEPT:
a) Cash flows will be paid as promised
b) The bond will not be sold at a capital loss
c) Cash flows will be reinvested at the YTM rate
d) The bond will be held until maturity
6.) What is the relative yield credit spread of a 10-year Treasury bond with a yield-to-maturity of 5.35% and a 10-year AAA corporate bond with a yield-to-maturity of 5.70%?
a) 0.0654
b) 0.0035
c) 0.1105
d) 0.0614
8.) A trader wants to duration-neutral position in US Treasury 2-year and 10-year notes. The trader wants a long position in the 2-year note (DV01 = 187.70) and short position in the 10-year note (DV01 = 812.84). How much worth of 10-year notes should the trader position if the 2-year note value is set at $50MM
a) $ 11. 35
b) – $ 11.55
c) $ 216.53
d) – $ 216.53
9.) Which of the following is TRUE with US Treasury auctions?
a) Uniform price auction appears to have higher bid-cover ratio and a lower dispersion of winning bids
b) Bidders face quantity uncertainty in both the uniform and discriminatory price auctions
c) The US treasury makes an equivalent allocation for bidders at the stop-out yield
d) Bidders cannot diversify their bids
10.) Which statement is TRUE according to pure expectations theory of yield curve shape?
a) Lower inflation expectations result in a flat yield curve
b) Higher inflation expectations result in a flat yield curve
c) Lower short-term inflation expectations result in a humped yield curve
d) Higher short-term inflation followed by lower long-term inflation results in a humped yield curve
11.) If a trader expects a flatter yield curve, he/she expects to profit from the move by going __ short-end bonds and going ___ long-end bonds.
a) Long, short
b) Long, long
c) Short, long
d) Short, short