Reading 66: Interest Rate Derivative Instruments - LOS b

答案和详解如下：

6.A LIBOR based floating rate bond combined with a LIBOR based zero cost collar (a long position in an interest rate cap and a short position in an interest rate floor both at a strike rate such that the collar has zero value) is equivalent to a:

A)   call option on a bond.

B)   pay-fixed swap position.

C)   fixed-rate bond.

D)   floating rate bond with a different reference rate.

The correct answer was C)    

The effective rate above the cap strike and below the floor strike, when combined with the floating rate on a bond, is constant.

7.Which of the following is a reason why dynamic riskless arbitrage is difficult in real markets?

A)   Continuous rebalancing.

B)   Securities are subject to insider trading.

C)   Short sale constraints exist.

D)   Investors are risk averse.

The correct answer was A)

The continuous rebalancing required with dynamic riskless arbitrage is not practical. For one thing, it leads to significant transaction costs.

8.Which of the following best represents an interest floor?

A)   A put option on an interest rate.

B)   A portfolio of put options on an interest rate.

C)   A put option on a fixed-income security.

D)   A portfolio of call options on an interest rate.

The correct answer was B)

A long floor (floor buyer) has the same general expiration-date payoff diagram as that for long interest rate put position.