1. Suppose that the current one-year rate (one-year spot rate) and expected one-

Question

1. Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:

a. 6.00%

b. 6.33%

c. 6.75%

d. 7.00%

2. The Dow Jones Industrial Average (DJIA) includes

a. all of the stock listed on the New York Stock Exchange.

b. 30 of the largest (market capitalization) and most active companies in the U.S. economy.

c. 500 firms that are the largest in their respective economic sectors.

d. 500 firms that are the largest as ranked by Fortune Magazine.

4. Which one of the following statements about vanilla bonds is NOT true?

a. They have fixed coupon payments.

The face value, or par value, for most corporate bonds is $1,000

c. Coupon payments are usually made quarterly.

d. The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value.

a. They have fixed coupon payments.

The face value, or par value, for most corporate bonds is $1,000

c. Coupon payments are usually made quarterly.

d. The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value.

Explanation / Answer

The image for Question 1 is missing, therefore, it cannot be answered. The remaining 2 questions have been answered.

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Question 2:

30 of the largest (market capitalization) and most active companies in the U.S. economy (which is Option B)

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Explanation:

Dow Jones Industrial Index (DJIA) is made up of the price-weighted average of 30 most significant stocks in terms of market capitailization listed on Nasdaq and NYSE (New York Stock Exchange). It consists of all the types of companies excluding transport and utilities.

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Question 3:

Coupon payments are usually made quarterly (which is Option C)

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Explanation:

Vanilla bond is also known as plain bond/straight bond. A vanilla bond is a simple bond which has no special features or conventions attached to it. It has fixed coupon payments paid at regular intervals (annually, semi-annually, quarterly or monthly). The face value is repayable (by the company) at the time of maturity of the bond. The coupon rate is fixed and can be calculated by dividing the amount of annual coupon payment with the face of the bond. Basically, it is a normal financial instrument, the terms/features of which cannot be modified such as adding a conversion feature to the bonds to make it more attractive.

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