11. Calculate the modified convexity for an asset which pays 500 at time 3 and 625 at time 7. Assume i = 0.06. [30.163]

A. Less than 25

B. At least 25, but less than 27

C. At least 27, but less than 29

D. At least 29, but less than 31

E. At least 31

12. You owe a liability of 1000 at time 6. You have one asset which pays X at time 4 and another asset which pays Y at time 9. Under this scenario and i = 0.04, your liability is fully immunized.

Calculate X − Y . [104.78]

A. Less than 60

B. At least 60, but less than 80

C. At least 80, but less than 100

D. At least 100, but less than 120

E. At least 120

13. You enter into a two-year deferred, three-year swap with a notional amount of 1,000,000 and the following yield curve.

Calculate the swap rate. [0.04837]

A. Less than 0.045

B. At least 0.045, but less than 0.05

C. At least 0.05, but less than 0.055

D. At least 0.055, but less than 0.06

E. At least 0.06

14. You purchase an annuity which pays 20 at the end of each quarter for the first year, 19 at the end of each quarter for the second year, and so on until it pays 1 at the end of each quarter for the twentieth year. If the annuity is priced with an annual effective rate of 0.03, what is the future value of the annuity (at the end of year 20)? [1247.37]

A. Less than 1000

B. At least 1000, but less than 1100

C. At least 1100, but less than 1200

D. At least 1200, but less than 1300

E. At least 1300

15. You finance the purchase of a 280,000 home with a 15-year mortgage. Your level monthly payments are 1950. At some time during the lifetime of the loan, you miss two consecutive payments without realizing your mistake. The total payment you must make at the end of the 15th year to pay off the loan is 7452.32. At the end of which month did the 1st missed payment occur? [47]

A. Less than 45

B. At least 45, but less than 50

C. At least 50, but less than 55

D. At least 55, but less than 60

E. At least 60

16. A bond with annual coupons and unknown face value is sold for 1089.38. The ratio of the annual effective yield rate to the nominal coupon rate is 1.6. You are given vnj = 0.27. Find the par value of this bond. [1500.01]

A. Less than 1450

B. At least 1450, but less than 1490

C. At least 1490, but less than 1530

D. At least 1530, but less than 1570

E. At least 1570

17. A bond with quarterly coupons is sold to yield 6% nominal annual compounded quarterly for 5000. The ratio of the principal to interest portion of the first coupon payment is 2/3. How much is each coupon payment? [125]

A. Less than 80

B. At least 80, but less than 100

C. At least 100, but less than 120

D. At least 120, but less than 140

E. At least 140

18. You have liabilities of 1000 in 3 years, 800 in 2 years, and 600 in 1 year. You would like to exactly match your liabilities using the following three bonds currently available: Bond A is a 3- year bond with 10% annual coupons. Bond B is a 2-year bond with 5% annual coupons. Bond C is a zero-coupon bond that yields 3%. What face value of bond B will you purchase? [675.32]

A. Less than 700

B. At least 700, but less than 800

C. At least 800, but less than 900

D. At least 900, but less than 1000

E. At least 1000

19. You decide to invest 1 at times t = 0, 1, 2, 3, 4, and 5. You put this money each year into a fund that earns interest at the force of interest given by:

δt = 1/10 − t

Determine how much money is in the fund just after the deposit made at time t = 5. [9]

A. Less than 8.5

B. At least 8.5, but less than 9.5

C. At least 9.5, but less than 10.5

D. At least 10.5, but less than 11.5

E. At least 11.5

20. A loan is amortized over 8 years with quarterly payments at an annual nominal interest rate of 8% compounded quarterly. The first payment is 500 and is to be paid three months from the date of the loan. Each succeeding quarterly payment will be 15 less than the prior payment.

Calculate the outstanding loan balance immediately after the 27th payment. [309.17]

A. Less than 200

B. At least 200, but less than 250

C. At least 250, but less than 300

D. At least 300, but less than 350

E. At least 350