1.

Purchasing power loss from inflation is captured in interest rates through _____________ .

Group of answer choices

IF

Inf Term

IP

none of the above

2.

Interest rates are nothing more than the cost of money.

True

False

3.

If two terms only, r* + IP, are used to calculate the interest rate of a bond, what type of bond is it.

Group of answer choices

short-term US government

foreign bond

inflation adjusted bond

long-term government

4.

If three terms only, r* + IP + MRP, are used to calculate the interest rate of a bond, what type of bond is it.

Group of answer choices

long-term US government

foreign

short-term government

corporate

5.

A default risk premium of a bond is intended to compensate a bond holder for the _________________ .

Group of answer choices

risk of foreign exchange

uncertainty of time

riskiness of the issuer

risk of inflation

6.

The liquidity premium measures a bond issuers financial liquidity.

True

False

7.

The term structure of interest rates describes the relationship between long-term rates and inflation.

True

False

8.

A yield curve shows the relationship between bond yields and maturities.

True

False

9.

A yield curve that is downward sloping and to the right is useful in predicting future economic softness.

True

False

10.

When market interest rates rise, the prices of bonds are expected to ______________ .

Group of answer choices

move based upon inflation expectations

flatten

fall

move in tandem