Practice Question Set: Properties of Interest Rates

Chapter 16. Properties of Interest Rates Practice Question set contains 37 pages covering the following learning objectives:

* Describe Treasury rates, LIBOR, Secured Overnight Financing Rate (SOFR), and repo rates and explain what is meant by the “risk-free” rate.

* Calculate the value of an investment using different compounding frequencies.

* Convert interest rates based on different compounding frequencies.

* Calculate the theoretical price of a bond using spot rates.

* Calculate the duration, modified duration, and dollar duration of a bond.

* Evaluate the limitations of duration and explain how convexity addresses some of them.

* Calculate the change in a bond’s price given its duration, its convexity, and a change in interest rates.

* Derive forward interest rates from a set of spot rates.

* Derive the value of the cash flows from a forward rate agreement (FRA).

* Calculate zero-coupon rates using the bootstrap method.

* Compare and contrast the major theories of the term structure of interest rates.

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