Chapter 2 Practice Questions
- 1. When a bond’s yield to maturity goes down, the price of the bond does what?
- A. It goes down.
- B. It stays the same.
- C. It goes up.
- D. Price and yield do not affect each other.
- 2. When would an issuer wish to redeem a callable bond?
- A. Anytime, as interest rates do not affect callable bonds
- B. When interest rates drop
- C. When interest rates rise
- D. After its maturity date
- 3. A $1,000 T-bill is purchased at a purchase price of $996 and it will mature in 90 days. It will be quoted at its bank discount yield. What will that yield be?
- A. 1.6%
- B. 0.4%
- C. 4%
- D. 16%
- 4. All of the following are characteristics of a Treasury bill except:
- A. They are sold at discount to the par value.
- B. They pay low periodic interest payments.
- C. They are considered the safest of Treasury securities.
- D. They have a maximum 52-week maturity.
- 5. Which of the following actions are required of a maturing T-bill futures contract?
- A. The seller delivered a U.S. Treasury bill with a $1 million face value.
- B. The seller delivered a U.S. Treasury bill with a $100,000 face value.
- C. The seller delivered $100,000 in cash to the buyer.
- D. The seller delivered $1 million in cash to the buyer.
- 6. Jackie shorts a T-bill futures contract that matures in March, with the intent to carry it to maturity. If the auction for a new 13-week T-bill during the delivery period is conducted on Thursday, March 21, what is the latest date he can make delivery?
- A. Thursday, March 21
- B. Friday, March 22
- C. Monday, March 25
- D. Wednesday, March 27
- 7. Drew shorts a T-bill futures contract quoted at 97.25 with 63 days remaining until delivery. What is the market price of this security?
- A. $99,519
- B. $97,250
- C. $972,500
- D. $995,188
- 8. In March a company knows that it will be purchasing $60 million in T-bills in three months to meet its