Reading 56: LOS c ～ Q1- 3

1.To construct a theoretical spot-rate curve using Treasury securities, the class of securities that provides the most accurate prices but has the disadvantage of large maturity gaps is:

A)   strips.

B)   municipals.

C)   on-the-run securities.

D)   off-the-run securities.

2.Which of the following is a disadvantage of using all of the Treasury coupon securities to construct the theoretical spot rate curve?

A)   The spot rate curve will be overfitted.

B)   The on-the-run Treasury securities trade too frequently.

C)   Real-time information is not available for all issues.

D)   The off-the-run Treasury securities tend to be mispriced.

3.Which of the following Treasury issues is typically NOT a candidate used to construct the theoretical spot rate curve?

A)   Treasury coupon strips.

B)   Treasury principal strips.

C)   On-the-run Treasury issues.

D)   All Treasury coupon securities and bills.