QUIZZ 4
1. What is meant by the « real rate ». Be explicit by using an example (1 point)
2. Suppose the quoted price of a 6-month Treasury Bill is 5. What is its cash price? (2 points)
3. Suppose that the coupon rate for a TIPS (Treasury Inflation Protection Security) is 3%. Suppose further that an investor purchases $10 000 of par value of this issue today. The semi annual inflation rate is 1%.
a. What is the dollar coupon interest that will be paid in cash at the end of the first 6 month? (1 point)
b. What is the the inflation adjusted principal at the end of 6 month? (2 points)
4. Suppose that a Treasury coupon security is purchased on April 8 and that the last coupon payment was made on February 15. Assume the year I which the security is purchased is not a ”leap” year (Feb 28 days).
How many days of accrued interest are there? (1 point)
If the coupon rate on the Treasury security is 7% and the par value of the issue purchase is $1 million, what is the accrued interest in dollars? (2 points)
5. Easy question!!! What are the 3 primary trading locations for the Treasury secondary market? (0 point)
6. What would be the ideal risk credit-free financial instrument to take advantage of a strong drop in interest rate? Why? Be explicit in your answer using previously learned terms(3 points)
7. Why is the yield on a bond with a sinking fund lower than a bond issue without one? Explain what a sinking fund is. Be as explicit as you can.(4 points)
8. What is a “bullet” bond? What advantage does it offer to an investor(1 point) 9. What is the difference between a fallen angel and an original-issue high yield bond
