Question 3

When the interest rate term structure is flat, the forward interest rate is

a) Negative

b) Equal to the difference between the ten-year zero rate and the two-year zero rate

c) Equal to the five-year zero rate

d) Equal to the inflation rate

e) Decreasing 1

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Question 4

Compute the dirty bond price. Consider a bond with ten years to maturity that pays a semi-annual coupon of $100 per year. The quoted price of this bond on the Bloomberg terminal is currently $1000. The last time that this bond issued a coupon payment was 108 days ago. Assume that there are 360 days per year. What is the current dirty bond price?

a) $1020

b) $1030

c) $1050

d) $1060

e) $1080