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Exam 4: The Meaning of Interest Rates

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Question 21

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Duration is

A) an asset's term to maturity.
B) the time until the next interest payment for a coupon bond.
C) the average lifetime of a debt security's stream of payments.
D) the time between interest payments for a coupon bond.

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Question 22

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The nominal interest rate minus the expected rate of inflation

A) defines the real interest rate.
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.
D) defines the discount rate.

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Question 23

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If a $1000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

When the ________ interest rate is low,there are greater incentives to ________ and fewer incentives to ________.

The ________ is below the coupon rate when the bond price is ________ its par value.

The riskiness of an asset's returns due to changes in interest rates is

A discount bond is also called a ________ because the owner does not receive periodic payments.

If $22,050 is the amount payable in two years for a $20,000 simple loan made today,the interest rate is

Which of the following are TRUE concerning the distinction between interest rates and returns?

For a 3-year simple loan of $10,000 at 10 percent,the amount to be repaid is

Which of the following $1,000 face-value securities has the lowest yield to maturity?

In which of the following situations would you prefer to be the borrower?

Which of the following are TRUE for a coupon bond?

If a $5,000 face-value discount bond maturing in one year is selling for $5,000,then its yield to maturity is

Interest-rate risk is the riskiness of an asset's returns due to

The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent.If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year,what is the yearly return on the bond you are holding?

An equal decrease in all bond interest rates

An equal increase in all bond interest rates

Comparing a discount bond and a coupon bond with the same maturity