1. Spot rates can be calculated as geometric averages of implied forward rates.
a. True
b. False
2. SHOW WORK If the six –month spot rate is 4% and the one-year spot rate is 4.4%, what is the six month forward six months hence:
a. 4%
b. 4.2%
c. 4.4%
d. 4.6%
e. 4.8%
f. 5.0%
3. If a floater is priced at a premium above par value, the quoted margin is greater than the discount margin.
a. True
b. False
4. When issuing debt , a company may use a sinking fund as a means of reducing:
a. Interest rate risk
b. Credit risk
c. Inflation risk
d. Reinvestment rate risk
1. What is the Z-spread? How is it calculated? What is the difference between the z-spread and the nominal spread? Discuss.