Question

9. Empirical evidence of liquidity premium indicates

(a) the longer the maturity, the larger the liquidity premium.

(b) they exist for up to one-year maturity.

(c) they only explain flat yield curves.

(d) they don't exist.

(e) they don't exist for declining yield curves.

20. The rate that equates a noncallable bond's future cash flows with the current price is

(a) coupon yield.

(b) yield to call.

(c) actual yield-to-maturity.

(d) current yield.

(e) promised yield-to-maturity.

Answer 1

Reminder : Since there are two questions i'll answer only one

SOLUTION

(20) Answer c -The rate that equates a noncallable bond's future cash flows with the current price is actual yield-to-maturity. Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield, but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity and if all payments are made as scheduled.