Question

Label each of the following statements true, false, or uncertain. Explain your choice carefully. (a)The present...

Label each of the following statements true, false, or uncertain. Explain your choice carefully.

(a)The present discounted value of a stream of returns can be calculated in real or nominal terms.

(b)The higher the one-year interest rate, the lower the present discounted value of a payment next year.

(c) One-year interest rates are normally expected to be constant over time.

(d) Bonds are a claim to a sequence of constant payments over a number of years.

(e) The yield curve normally slopes up.

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Answer #1

a. True. The present discounted value of a stream of returns can be calculated in real or nominal terms.

b. True. The higher the one year interest rate, the lower is the present discounted value of a payment next year. This is because interest rates and discounted values are negatively related.

c. False. It is seen that interest rates change frequently as market conditions in the economy changes.

d. True. Bonds are a claim to a sequence of constant payments over a number of years.

e. True. The empirical evidences show that yield curve normally slopes upwards.

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