Quiz 1 Solutions, F2 1. The spot rates for 1 year and 2 years are 4% and 5%, respectively. What is the 1-year rate 1-year forwarda. b. c. d.5.01 4.56 6.01 9.61(1.04)(1+f) = 1.05^2 Answer (c) 2. An upward sloping term structure implies, for the most part a. b. c. d.Decreasing forward rates Increasing forward rates Forward rates all equal Forward rates can’t be determinedAnswer (b) 3. The three successive 1-year rates are 1.00, 1.80, and 2.60 (the last two are forward rates). What is the 3-year spot ratea. b. c. d.1.55 1.80 5.49 2.60(1.01*1.018*1.026) = (1+r)^3 = (1.01*1.018*1.026)^1/3 – 1 Answer (b) 4. In our context (fixed income class) TIPS are: a. Inflation protected securities issued by corporations b. The pointed or rounded end or extremity of something slender or tapering c. Amount of money added to restaurant bill to help waiters pay for college d. Inflation protected securities issued by the government Answer (d)15. Accrued interest a. b. c. d.Is the difference between flat and full prices Is the difference between full and dirty prices Is the difference between quoted and clean prices Is the sum of accumulated value and clean pricesAnswer (a) 6. The 5 1/10 s of 11/15/2027 pay coupons on February 1 and August 1 of each year. If a bond with face value of $3,000 is sold on May 1, and assuming 30/360 convention, what is the amount of the accrued interesta. b. c. d.$3.75 $11.33 $38.25 $111.11 C: $3,000 (90/180) (5.1%/2) = 38.25Answer (c) 7. The yield measure that ignores the time value of money is a. b. c. d.Yield to maturity Current yield IRR Yield to call/putAnswer (b) 8. [Circle all the correct answers]. A US Treasury bill a. b. c. d.Is a zero-coupon security Is sold at par Has a maturity of one year or less Is sold at a discountAnswer (a,c,d) For problems 9-10 below, you are given the following par bonds with the…