USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 93

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a pure yield pick-up swap: You currently hold a 20-year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate you are considering a 20-year, Aa 10 percent coupon bond priced to yield 10.75 percent. Assume a reinvestment rate of 12.00 percent, semiannual compounding, and a one-year workout period.

-Refer to Exhibit 13.6. The value of the swap is ____ basis points in one year.

• A) 40.4
• B) 60.6
• C) 80.8
• D) 20.5
• E) 100.1

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Definitions:

Winning Bids

Offers in an auction that outmatch all others, securing the auctioned item or service for the bidder.

Bid-rigging

An illegal agreement between parties to fix the outcome of a bidding process to benefit themselves at the expense of others.

Cartels

Formal agreements among competing firms to control prices or output in a particular market, often to monopolize a market.

Auctions

A sales event where goods or services are sold to the highest bidder in a competitive process.