Question 1

(I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds.

Accepted Answer

A)   (I)  is true, (II)  false.
B)   (I)  is false, (II)  true.
C)   Both are true.
D)   Both are false.

Question 2

Which of the following are true for a coupon bond?

Accepted Answer

A)   When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B)   The price of a coupon bond and the yield to maturity are negatively related.
C)   The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D)   All of the above are true.
E)   Only A and B of the above are true.

Question 3

When the real interest rate is high,there are greater incentives to borrow and fewer incentives to lend.

Accepted Answer

A) True 
 B)False

Question 4

The interest rate that is adjusted for actual changes in the price level is called the

Accepted Answer

A)   ex post real interest rate.
B)   expected interest rate.
C)   ex ante real interest rate.
D)   none of the above.

Question 5

(I) The average lifetime of a debt security's stream of payments is called duration.
(II) The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.

Accepted Answer

A)   (I)  is true, (II)  false.
B)   (I)  is false, (II)  true.
C)   Both are true.
D)   Both are false.

Question 6

(I) A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment.
(II) A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount (face or par value) is repaid.

Accepted Answer

A)   (I)  is true, (II)  false.
B)   (I)  is false, (II)  true.
C)   Both are true.
D)   Both are false.

Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation?

Which of the following are true for a coupon bond?

Correct Answer
verified

When the real interest rate is high,there are greater incentives to borrow and fewer incentives to lend.

Correct Answer
verified

(I) The average lifetime of a debt security's stream of payments is called duration. (II) The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.

Correct Answer
verified

(I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds.

Correct Answer
verified

(I) A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment. (II) A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount (face or par value) is repaid.

Correct Answer
verified

The interest rate that is adjusted for actual changes in the price level is called the

Correct Answer
verified

Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation?

Which of the following are true for a coupon bond?

Correct AnswerverifiedShow Answer

When the real interest rate is high,there are greater incentives to borrow and fewer incentives to lend.

Correct AnswerverifiedShow Answer

(I) The average lifetime of a debt security's stream of payments is called duration. (II) The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.

Correct AnswerverifiedShow Answer

(I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds.

Correct AnswerverifiedShow Answer

(I) A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment. (II) A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount (face or par value) is repaid.

Correct AnswerverifiedShow Answer

The interest rate that is adjusted for actual changes in the price level is called the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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