Wealth-Forum e-zine

Test your understanding of this topic

Q1.

year G-Sec has a yield of 7% and a 2 year G-sec has a yield of 7.64%. An investor buys a 2 year G-sec. After one year, if the yield curve remains same, the G-sec that the investor bought is

a. trading at a yield of 7.64% with a coupon of 7.64%

b. trading at a yield of 7.64% with a coupon of 7%

c. is trading at a yield of 7% with a coupon of 7.64%

Q2.

In ‘rolling down the yield curve’, the bond is sold when:

a. it is trading at a higher yield than the yield when it was bought

b. it is trading at a lower yield than the yield when it was bought

c. it is trading at the same yield at which it was bought

Q3.

In ‘rolling down the yield curve’, the bond is typically bought at:

a. highest point of steepening yield curve

b. lowest point of steepening yield curve

c. mid-point of steepening yield curve

Q4.

Steepening of yield curve implies that:

a. YTM decreases with increase in maturity

b. YTM increases with increase in maturity

c. YTM has no relation with maturity

Q5.

For taking advantage of ‘rolling down the yield curve strategy’, the yield curve should be:

a. upward sloping

b. inverted

c. Steepening

d. Both a and c