Hull:Options,FuturesandOtherDerivatives,NinthEditionChapter4:InterestRatesMultipleChoiceTestBank:Questions1.ThecompoundingfrequencyforaninterestratedefinesA.ThefrequencywithwhichinterestispaidB.AunitofmeasurementfortheinterestrateC.TherelationshipbetweentheannualinterestrateandthemonthlyinterestrateD.Noneoftheabove2.Aninterestrateis6%perannumwithannualcompounding.Whatistheequivalentratewithcontinuouscompounding?A.5.79%B.6.21%C.5.83%D.6.18%3.Aninterestrateis5%perannumwithcontinuouscompounding.Whatistheequivalentratewithsemiannualcompounding?A.5.06%B.5.03%C.4.97%D.4.94%4.Aninterestrateis12%perannumwithsemiannualcompounding.Whatistheequivalentratewithquarterlycompounding?A.11.83%B.11.66%C.11.77%D.11.92%5.Thetwo-yearzerorateis6%andthethreeyearzerorateis6.5%.Whatistheforwardrateforthethirdyear?Allratesarecontinuouslycompounded.A.6.75%B.7.0%C.7.25%D.7.5%6.Thesix-monthzerorateis8%perannumwithsemiannualcompounding.Thepriceofaone-yearbondthatprovidesacouponof6%perannumsemiannuallyis97.Whatistheone-yearcontinuouslycompoundedzerorate?A.8.02%B.8.52%C.9.02%D.9.52%7.Theyieldcurveisflatat6%perannum.WhatisthevalueofanFRAwheretheholderreceivesinterestattherateof8%perannumforasix-monthperiodonaprincipalof$1,000startingintwoyears?Allratesarecompoundedsemiannually.A.$9.12B.$9.02C.$8.88D.$8.638.Underliquiditypreferencetheory,whichofthefollowingisalwaystrue?A.Theforwardrateishigherthanthespotratewhenbothhavethesamematurity.B.Forwardratesareunbiasedpredictorsofexpectedfuturespotrates.C.Thespotrateforacertainmaturityishigherthantheparyieldforthatmaturity.D.Forwardratesarehigherthanexpectedfuturespotrates.9.Thezerocurveisupwardsloping.DefineXasthe1-yearparyield,Yasthe1-yearzerorateandZastheforwardratefortheperiodbetween1and1.5year.Whichofthefollowingistrue?A.XislessthanYwhichislessthanZB.YislessthanXwhichislessthanZC.XislessthanZwhichislessthanYD.ZislessthanYwhichislessthanX10.WhichofthefollowingistrueofthefedfundsrateA.ItisthesameastheTreasuryrateB.ItisanovernightinterbankrateC.Itisarat...
