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Which one of the following statement is most FALSE? a. a treasury yield curve plots the...

Which one of the following statement is most FALSE?

a. a treasury yield curve plots the interest rates relative to time to maturity

b. the pure time value of money is the term structure of interest rates.

c. U.S. Treasury bonds are quoted as a percentage of par.

d. U.S. treasury bonds are considered to be free of interest rate risk

e. interest rates that include an inflation premium are referred to as nominal interest rate.

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Answer #1

Answer: (d) U.S. treasury bonds are considered to be free of interest rate risk, is FALSE.

U.S. treasury bonds are fixed interest, marketable security, that is issued by U.S. Government. U.S. treasury bond is free from credit and other risk but it is exposed to interest rate risk and inflation risk.

Interest rate risk- Fluctuations in interest rates due to change inflation. Underlying value of bond may change, due to change in interest rates. There is inverse relationship between value of fixed income securities and interest rates.

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