91Ó°ÊÓ

A bank quotes an interest rate of \(14 \%\) per annum with quarterly compounding. What is the equivalent rate with (a) continuous compounding and (b) annual compounding?

What is meant by LIBOR and LIBID. Which is higher?

The term structure of interest rates is upward-sloping. Put the following in order of magnitude: (a) The 5 -year zero rate (b) The yield on a 5 -year coupon-bearing bond (c) The forward rate corresponding to the period between \(4.75\) and 5 years in the future What is the answer to this question when the t?rm structure of interest rates is downwardsloping?

What does duration tell you about the sensitivity of a bond portfolio to interest rates. What are the limitations of the duration measure?

Suppose that 6 -month, 12 -month, 18 -month, 24 -month, and 30 -month zero rates are, respectively, \(4 \%, 4.2 \%, 4.4 \%, 4.6 \%\), and \(4.8 \%\) per annum, with continuous compounding. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of \(4 \%\) per annum semiannually.

A 3 -year bond provides a coupon of \(8 \%\) semiannually and has a cash price of 104 . What is the bond's yield?

A 10 -year \(8 \%\) coupon bond currently sells for \(\$ 90\). A 10 -year \(4 \%\) coupon bond currently sells for \(\$ 80\). What is the 10 -year zero rate? (Hint: Consider taking a long position in two of the \(4 \%\) coupon bonds and a short position in one of the \(8 \%\) coupon bonds.)