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Sample Final Exam Solns Revised April 19 2006.docx

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University of Ottawa

Sample Final Exam SolutionsRevised April 19 2006NB See revised solution for Problem 28Part I 20 marks There are 20 multiple choice questions in this part Choose the one answer that best answers each question Each question counts one mark1The interest rate at which banks in the Eurocurrency market lend to each other is known as theaEurocurrency currency rateECRbLondon interbank offer ratecexchange ratedinterest rate parity2If the spot rate for Swiss francs is 06658franc and the 180day forward rate is 06637 the market is indicating that the Swiss franc is expected toastrengthen relative to the dollarbweaken relative to the ECUclose value relative to the dollar over the next 6 monthsdgain value relative to the dollar over the next 6 months3The values shown in ordinary annuity tables either present value or compound value can be adjusted to the annuity due form bythe ordinary annuity interest factor by adividing 1inbdividing 1icmultiplying 1indmultiplying 1i4When using a present value of an annuity tableegTable IV at the back of the bookapayments are assumed to be made at the beginning of each periodbPVIFA factors decrease with an increase in the interest ratecPVIFA factors increase with an increase in the number of periods db and c only5Which of the following types of debt securities protect investors against interest rate riskafloating rate bondsbextendible notescoriginal issue deep discount bondsda and b only1
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