QUIZZ 1
1. A pension fund manager invests $10 million in a debt obligation that promises to pay 7.3% per year for four years . What is the future value of $10 million? (2 point)
2. Suppose that a life insurance company has guaranteed a payment of $14 million to a pension fund 4.5 years from now. If the life insurance company receives a premium of $10.4 million from the pension fund and can invest the entire premium for 4.5 years at an annual rate of 6.25%, will it have sufficient funds from this investment to meet the $14 million obligation? (3 points)
3. What is the dollar price of a 4 year bond (face value $1000) with a coupon of 6% paid annually when the yield is at 8%? Without calculating it, what would happen to the price of the bond if yields increased? (5points)
4. What is meant by a premium bond ? a discount bond? A bond trading at par? (1 point)
5. If you expect interest rates to go up in the next 3 years, would you rather buy a fixed or floating rate bond? Explain your answer. (3 points)
6. What is the advantage of a call feature for an issuer? (3 points)
7. In January 10th Financial Times, can you explain what is meant by “Corporate supply hits Treasuries” ?
(3 points)
