1. What is the today’s shape of the yield curve for the term structure of interest rates of the next four years?
2. A) flat
3. B) downward sloped
4. C) upward sloped
5. D) cannot be decided
6. E)  none of the above

Answer:  B

1. What is the price of a ten percent coupon bond with a maturity of two years with a face value of $1000 and annual coupon payment?
2. A) $1082.6
3. B) $ 950.5
4. C) $580.5
5. D) $1100.5
6. E) none of the above

Answer: A

Bond price =100/1.06+1100/1.0552=$1082.6

1. What is the yield to maturity for a zero coupon bond with a maturity of two years?
2. A) cannot be decided, since the market price of the bond is not given.
3. B) 5%
4. C) 6%
5. D) 5%
6. E) none of the above

Answer: B

1. What is the tomorrow’s spot rate of one year ?
2. A) 5%
3. B) 6%
4. C) cannot be decided by using today’s term structure of the interest rates
5. D) 5%
6. E) none of the above

Answer: C

1. What is the forward rate from year 3 to year 4?
2. A) 0%
3. B) 0%
4. C) 5%
5. D) 01%
6. E) none of the above

Answer: D

f4 =1.0454/1.053-1=3.01%