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Question 32

Which of the following will have the effect of increasing the duration of a bond, all else remaining equal:

I. Increase in bond coupon

II. Increase in bond yield

III. Decrease in coupon frequency

IV. Increase in bond maturity

Options:

A.

III and IV

B.

I and III

C.

I and II

D.

II, III and IV

Question 33

The most risky tranche of a structured credit derivative is called:

Options:

A.

the risky tranche

B.

the senior tranche

C.

the equity tranche

D.

the mezzanine tranche

Question 34

Calculate the settlement amount for a buyer of a 3 x 6 FRA with a notional of $1m and contract rate of 5%. Assume settlement rate is 6%.

Options:

A.

Receive $9434

B.

Pay $2463

C.

Receive $2463

D.

Pay $9434

Question 35

A borrower pays a floating rate on a loan and wishes to convert it to a position where a fixed rate is paid. Which of the following can be used to accomplish this objective?

I. A short position in a fixed rate bond and a long position in an FRN

II. An long position in an interest rate collar and long an FRN

III. A short position in a fixed rate bond and a short position in an FRN

IV. An interest rate swap where the investor pays the fixed rate

Options:

A.

None of the above

B.

I and IV

C.

I, II and IV

D.

II and III

Page: 8 / 10
Exam Code: 8006
Exam Name: Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition
Last Update: Nov 1, 2024
Questions: 287
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