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