Derivative contracts-treasure bond futures contract


1.) Companies manage risk in many ways. Which of the following is NOT one of them?

A. Use derivative contracts to reduce risk

B. Transfer the ways.

C. Transfer the risk to an insurance company

D. Minimize the magnitude of loss associated with adverse event

E. none of the above

 

2.) Two companies are evaluating a possible swap. Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. If A issues floating-rate debt and B issues fixed-rate debt, and then they engage in following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. Which of the subsequent statements is right?

A. The swap is advantageous to A, however not to B

B. The swap is not advantageous to either A or B

C. The swap is advantageous to B, however not to A

D. The swap is advantageous to both A and B

E. none of the above

 

3.) "The June Treasury bond futures contract has a quoted price of 102'12. Are current market interest rates lower or higher than the standardized rate on a futures contract?

A. lower, because the contract is selling at a premium

B. higher, because the contract is selling at a premium

C. higher, because the contract is selling at a discount

D. more information is required to answer this question

E. None of the above answers is correct

 

4.) The June Treasury bond futures contract has a quoted price of 102'12. What is current value of one contract in dollars?

A. 102,375

B. 102,120

C. 90,563

D. 90,180

E. none of the above

 

5.) The June Treasury bond futures contract has a quoted price of 102'12. What is the implied yearly interest rate?

A. 3.05%

B. 5.85%

C. 2.90%

D. 5.80%

E. none of the above

 

6.) The December Treasury bond futures contract has a quoted price of 95'18 and the implied interest rate is 3.2% (semiannual). If annual interest rates go up by 1.00 percentage point, what is the value of one contract?

A. $76,939

B. $ 69,591

C. $95,523

D. $85,504

E. none of the above

 

7.) Six months ago, a December Treasure bond futures contract had a quoted price of 95'16. Now, the quoted price is 99'4. What is gain or loss on contract?

A. Loss of $3625

B. Gain of $3625

C. Loss, but cannot determine amount

D. Gain, but cannot determine amount

E. none of the above

 

8.) Which of the following are ways risk management can be used to increase the value of a firm?

A. risk management will change the capital structure of the company

B. risk management will allow managers to defer income

C. risk management will not affect taxes.

D. all of the above

E. none of the above

 

9.) Two basic types of hedges involving the futures markets are long hedges and short hedges. Which of the subsequent is right?

A. both long and short hedges involve buying futures contracts

B. a short hedge involves buying futures contracts

C. both long and short hedges involve selling futures contracts

D. a long hedge involves buying futures contracts

E. none of the above

 

10.) Which of the following is correct?

A. A speculator who buys or sells futures contracts has an offsetting position in the spot market

B. A speculator who sells futures contracts believes the price will increase

C. A speculator who sells futures contracts believes the price will decrease

D. A speculator who buys or sells futures contracts takes little risk

E. none of the above

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