Chapter 6, 7 Quiz 447

A trader enters into a long position in one Eurodollar futures contract. How much does the trader gain when the futures price quote increases by 6 basis points?

$150

How much is a basis point?

0.01%

Which of the following is closest to the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? The yield on the bond is 10% per annum with continuous compounding.

1.88

Which of following is applicable to corporate bonds in the United States?

30/360

Which of the following day count conventions applies to a US Treasury bond?

Actual/Actual (in period)

A company can borrow at 10% in fixed-rate markets or at LIBOR+1.75% in floating rate markets. Company B can borrow at 9% in fixed-rate markets or at LIBOR+1.5% in floating rate markets. Which of the following statements is true? Correct Answer

Company B has a comparative advantage in fixed rate markets.

An interest rate swap has _______ worth when first initiated. Over time, its value becomes _______.

zero; positive or negative

The reference entity in a credit default swap is:

The company or country whose default is being insured against

A company enters into an interest rate swap where it is paying fixed and receiving LIBOR. When interest rates increase, which of the following is true?

The value of the swap to the company increases

A Eurodollar is a _______.

dollar deposited in any bank outside the U.S.