MCQs Flashcards
(17 cards)
The yield curve implies
forward interest rates
A parallel upward shift of the yield curve plot best implies
Increased riskiness
A forward rate inconsistent with the spot yield curve provides
Opportunity for risk-free profits
A forward rate agreement provides hedging against
Hedging for a company’s exposure to interest rate risk
Floating rate bonds are likely to benefit issuers, when issued
at the end of a crisis period
Bond duration measures
The sensitivity of bond price with respect to changes in average yield
Risk-neutral probabilities incorporate
The effects of risk averse preferences
Matching duration can provide hedging when
Duration of assets times assets value equals duration of liabilities times liabilities value
A combination of forward contracts can be replicated by
An interest rate swap
how do Risk-neutral probabilities compare to real-world probabilities
Risk-neutral probabilities are larger than real-world probabilities
American options are more expensive than European because
They can be exercised at any time
A binomial interest rate lattice in general reflects
The evolution of the economy
A three-year coupon bond is equivalent to
A portfolio of three zero coupon bonds
An option written on a bond can be replicated by
long and/or short positions of zero-coupon bonds of different maturities
Risk-neutral valuation eliminates
Arbitrage opportunities using risk-adjusted probability measure
The value of an American put option written on a bond
Is contingent on the value of the bond at any time until maturity
The holder of a callable bond will exercise the put option whenever
The continuation value is larger than the par value of the bond plus any coupon
