BNAD 301 Exam 3 with Questions and Answers

BNAD 301 Exam 3 with Questions and Answers The portfolio you manage is holding $25M of 6s of 2023 Treasury bonds with a price of 110. You would like to hedge the interest rate risk using a forward contract on these for the next year. You could __________________ A. Take a short position for corporate bonds at the same interest rate and maturity B. Take a long position for corporate bonds at the same interest rate and maturity C. Take a short position for T-bonds at the same interest rate and maturity D. Take a long position for T-bonds at the same interest rate and maturity ANSWER C Interest forward contracts are used to: A. hedge against liquidity risk. B. guarantee future interest payments. C. hedge against interest rate risk. D. hedge against interest rates rising. ANSWER C Futures contracts have an advantage over forward contracts in that A. the price of the futures contract diverges from the price of the underlying asset to be delivered. B. they specify that a financial instrument must be delivered by one party to another. C. they are not subject to default risk and are more liquid. D. the contract expires one year in the future. ANSWER