Next few questions are based on given information:

Given four set of bonds, durations and maturities

BOND 1: Fixed rate Treasure Bond

BOND 2: Zero-Coupon Corporate bonds mature at 5 yrs and 7 yrs

BOND 3: Fixed rate Mortgage Passthrough

BOND 4: Fixed rate Corporate bonds mature at 7 yrs

A Liability with duration 5.8 mature at 5 yrs and 7 yrs, there are no internl cash flows.

**Q1.** Which bond has contingent risk

A. 2 , 3 and 4. as all there bond can default. B only 3 C 3 and 4

**Q2. **. Which of bond will be best to fund the liability?

**A. 1 B 2 C 3 D 4**

**Q3. **Which of risk will Mortgage Passthrough have when interest rate decline?

A. negative convexity B. credit risk **C **market Risk D. Extension Risk.

**Q4.** Suppose a bond’s quoted price is 105 7/32 and the accrued interest is $23.54. If the bond has a par value of $1,000, what is the bond’s flat price?

A) $1,000.00. B) $1,023.54. C) $1,075.73. D) $1,052.19.

**Q5. **The dirty, or full, price of a bond:

A) applies if an issuer has defaulted.

B) is paid when a security trades ex-coupon.

C) equals the present value of all cash flows, plus accrued interest.

D) is usually less than the clean price.

**Q6. **An investor has a 1-year, 10% semiannual coupon bond with a price of $975. if the 6-month Treasury bill(T-bill) has a holding period yield of 6%, what is the 1-year theoretical spot rate on a bond equivalent basis?

A.. 6.4% B. 8.7% C. 9,9% D. 12.8%

NB: the nominal rate attached with compounding Annually is called EAR and nominal rate with Compounding Semi annually is called BEY.