Question

Questions — Fill in the Blank

1. The chair of the Federal Reserve is ______

2. The ten-year break-even rate is used by analysts as a gauge of ______

True or False

1. The yield curve steepened at the end of the week that the article was written because long-dated bonds were outperforming shorter-dated bonds in terms of price increases.

2. Undershooting unemployment rates and overshooting on price growth should steepen the yield curve and reduce inflation risk premiums.

3. Inflation has for years been dormant in the United States and developed nations, a key reason the Fed has held off on raising interest rates in 2016.

4. Longer-dated debt offers higher yields but is more sensitive to inflation expectations.

Answer 1

Fill in the blanks:

1. "Head of the Federal Reserve"

2. "Inflation Rate"

True / False:

1. True. As, time increase, the changes in prices are more due to out performing longer dated bonds. Hence Yield curve is steep towards the week's end.

2. False. reducing unemployment rates means getting closer to full employment with increase in price growth. It should steepen the yield curve, as the price changes will be quicker, but with that our inflation also rises and hence increases the inflation risk premium.

3. True. It is considered as one of the main tool to check on interest rate under monetary policy of central banks.

4. True ( PV = ∑ C/(1+kd)^t + FV/(1+kd)^n, where t ranges from 1 to n.) - The longer the maturity of a bond, the greater is its price change in response to a given change in the required return.

kd is yield rate and t is time.