Series 6: Exercise

Exercise

Answer the following questions.

1. 1. Treasury bonds and notes pay interest every:
2. A. Month
3. B. Three months
4. C. Six months
5. D. Year
6. 2. Which of the following is the most likely to be a spread of Treasury bills with a par value of $1,000?
7. A. 3.25% – 3.35%
8. B. 3.35% – 3.25%
9. C. 97.5 – 98.0
10. D. 98.0 – 97.5
11. 3. How much would you pay for a $1,000 10-year Treasury bond priced at 95.08 (excluding accrued interest)?
12. A. $95.08
13. B. $950.80
14. C. $952.50
15. D. $1,000.00
16. 4. All of the following are characteristics of Treasury bills except:
17. A. They are sold at a discount to the par value.
18. B. They pay low periodic interest payments.
19. C. They are considered the safest of Treasury securities.
20. D. They have a maximum 52-week maturity.
21. 5. Trades for U.S. Treasury securities settle:
22. A. The next day
23. B. The next business day
24. C. The day after the next business day
25. D. The third day after the next day

Answers

1. 1. C. As is the case with most interest-paying bonds, Treasury bonds and notes pay interest semiannually, which means every six months.
2. 2. B. T-bills are quoted in yields rather than on a dollar or bond point basis. Because the yield represents the discount that the investor receives of the bill’s par value, an investor will want a larger yield and thus a larger discount to the price. For this reason, when a T-bill spread is quoted, the bid will be higher than the ask. The dealer wants to buy T-bills at a higher disc