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Exam 4: The Meaning of Interest Rates

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Question 31

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The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds.It is called the ________ when approximating the yield for a coupon bond.

A) current yield
B) discount yield
C) future yield
D) star yield

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Question 32

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To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

A) face value.
B) par value.
C) deflation.
D) discounting the future.

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Question 33

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An increase in the time to the promised future payment ________ the present value of the payment.

Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%.Should you follow his advice?

The ________ of a coupon bond and the yield to maturity are inversely related.

In the United States during the late 1970s,the nominal interest rates were quite high,but the real interest rates were negative.From the Fisher equation,we can conclude that expected inflation in the United States during this period was

The ________ interest rate is adjusted for expected changes in the price level.

All else equal,when interest rates ________,the duration of a coupon bond ________.

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

If the nominal rate of interest is 2 percent,and the expected inflation rate is -10 percent,the real rate of interest is

Prices and returns for ________ bonds are more volatile than those for ________ bonds,everything else held constant.

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

The interest rate on a consol equals the

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

All of the following are examples of coupon bonds EXCEPT

I purchase a 10 percent coupon bond.Based on my purchase price,I calculate a yield to maturity of 8 percent.If I hold this bond to maturity,then my return on this asset is

The present value of an expected future payment ________ as the interest rate increases.

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a