Question

Nominal interest rate represents the growth factor of purchasing power.

True

False

As the maturity of the loan increases, the interest rate quoted on that loan increases because of the increase in maturity premium.

True

False

Which of the following is correct for the company's bond price when the default risk of that company increases (when the future prospect of the company becomes poor)?

YTM increases therefore the price of the bond increases |
||

YTM decreases therefore the price of the bond decreases |
||

YTM decreases therefore the price of the bond increases |
||

YTM increases therefore the price of the bond decreases |

Which of the following is correct for the relationship between bond prices and interest rates?

Bond prices and interest rates are directly related. This means that when interest rates go up, the bond prices go up as well, |
||

Bond prices and interest rates are not related at all. |
||

Bond prices and interest rates are inversely related. This means that when interest rates go up, bond prices go down. |
||

None |

Answer #1

1. The given statement is FALSE because real interest rate is always considered by investor for representing the growth factor of purchasing power as it accounts for inflation deduction.

2. The given statement is TRUE because when the maturity of the loan increase, the interest rate quoted on the loan increase because increase in maturity premium.

3. Yield to maturity of the bond will increase, the bond prices will decrease in case of the default rates going up for the bonds.

So, the correct answer is option (d)YTM increases therefore the price of the bond decreases.

4. There will always be an inverse relationship between bond prices and interest rates.

Correct answer is option ( C)Bond prices and interest rates are inversely related. This means that when interest rates go up, bond prices go down.

1a. As the maturity of the loan increases, the interest rate
quoted on that loan increases because of the increase in maturity
premium.
True
False
1b.
Which of the following is correct for the company's bond price
when the default risk of that company increases (when the future
prospect of the company becomes poor)?
YTM increases therefore the price of the bond increases
YTM decreases therefore the price of the bond decreases
YTM decreases therefore the price of the bond...

The face value of the bond is paid at the maturity of the
bond.
True
False
Which of the following is used as a discount rate while
calculating the bond price?
Yield to Maturity (YTM)
Coupon Rate
Face Value
None
Coupon payments are determined by multiplying face value of the
bond with the coupon rate.
True
False
Which of the following explains the differences in interest
rates?
The length of the investment (maturity premium).
The level of risk of the...

1. The face value of the bond is paid at the maturity of the
bond. True or false?
2. Which of the following is used as a discount rate while
calculating the bond price?
Yield to Maturity (YTM)
Coupon Rate
Face Value
None
3. Coupon payments are determined by multiplying face value of
the bond with the coupon rate. True or false?
4. Which of the following explains the differences in interest
rates?
The length of the investment (maturity premium)....

True/ False Explain: A bond with a $100 annual
interest payment with five years to maturity (not expected to
default) would sell for a premium if interest rates were below 9
percent and would sell for a discount if interest rates were
greater than 11 percent.

A. A bond was issued three years ago. The coupon rate more
closely captures the current risk profile of the bond than does the
YTM. True or False
B. When the yield-to-maturity on a bond increases its price
decreases. True or False
C. All other factors equal, the longer the maturity on a bond,
the more sensitive is its price to changes in the YTM (longer
maturity = greater price volatility).

1. Which of the following is the most likely to happen if
interest rates (and thus bonds yields) were to go up?
a. Bond prices would also increase.
b. Bond coupon rates would decrease.
c. Face value of bonds would also increase.
d. Bond prices would go down.
e. Nothing, since interest rates don't affect bond prices.
2. Which of the following is the correct description of a bond
with a coupon rate of 5% and YTM of 4%?
a....

True or False?
If market interest rate falls to zero, then bonds can be issued
at zero coupon rates and their market values would be zero.
FALSE
Interest rate risk for bonds decreases as bond maturity
decreases and as the frequency of bond interest payments rises.
TRUE
The fair market value of a stock rises with the expected
dividend growth rate. FALSE
Companies interested in maximizing shareholder value should
choose capital projects with a Net Present Value of at least...

True or false:
If interest rates fall by 1%, a 10-year, 3% coupon bond will
increase in percentage of price less than an otherwise equivalent
zero-coupon bond.
The term structure of interest rates defines the relation
between bond maturity and bond yield to maturity.
Nominal interest rates tend to increase when the economy
expands.
A pension fund would probably prefer a municipal security with
a yield of 2.5% to an equivalent corporate bond with a yield of
3%.

1. (TRUE or FALSE?) The lower the interest rate, the faster the
investment will grow.
2. (TRUE or FALSE?) The higher the interest rate, the lower the
future value of an investment.
3. (TRUE or FALSE?) Compound growth occurs when the initial
value of a number increases or decreases each period by the factor
1/(1 + growth rate).

1 if the return of two stocks has a correlation of -1, what does
this imply about the relative movements in the stock prices?
a. if the price of one stock goes up, the other stock price
always goes up as well
b. if the price of one stock goes up, the other stock price
always go dow
c for each dollar increase in the price of one stock, the other
stock also decreases by a dollar
d the percentage...

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