3. A CD matruing after 6 months with a par of one million dollars paying an inte

Question

3. A CD matruing after 6 months with a par of one million dollars paying an interest rate of 1.5% annually, will have an Effective Annual Rate (EAR) of:

a. 1.629%

b. 1.622%

c. 1.601%

d. None of the above

4. A CD issued with 2.8% Annual interest rate paid Semi-annual for a maturity of six months was selling at issue for $999,550 (1,000,000 Par). The EAR is:

a. 2.94%

b. 2.962%

c. 2.839%

d. None of the above

8. A bond has 2 year maturity with 5% coupon rate paid semiannually. If the current market interest rate is 3.0%, what is the duration of the bond (Par $1,000)? Closest answer.

a. 2.9 years

b. 1.5 years

c. 1.2 years

d. 1.9 years

9. In the previous question, if the interest rates increases by 25 b.p. then the change in the price of the bond is:

a. -4.6%

b. +4.6%

c. -2.50%

d. +2.50%

e. None of the above.

16. A $100,000 10-year Treasury note with a 1% coupon rate paid semi-annually. The current market interest rate is 5%. What is the price of a STRIP that is due after 3 years?

a. $1,800.25

b. $1,724.59

c. $1,583.73

d. 2,000.00

e. None of the above.

Explanation / Answer

3.

APR = 1.5%

No. of compounding m =2

EAR = (1+APR/m)^m -1

                =(1+0.015/2)^2 -1

                =1.015056-1

                = 1.51%

Therefore, correct answer is d. None of the above.

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