Question
1) The interest rate that equates the present value of payments received from a debt instrument with its value today is the Select one: A.
1)
The interest rate that equates the present value of payments received from a debt instrument with its value today is the
Select one:
A. real interest rate.
B. yield to maturity.
C. current yield.
D. simple interest rate.
2)
If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is
Select one:
A. -3 percent.
B. -2 percent.
C. 3 percent.
D. 7 percent.
3)
Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant.
Select one:
A. decrease; right
B. increase; right
C. increase; left
D. decrease; left
4)
If the possibility of a default increases because corporations begin to suffer losses, then the default risk on corporate bonds will ________, and the bonds' returns will become ________ uncertain, meaning that the expected return on these bonds will decrease, everything else held constant.
Select one:
A. decrease; more
B. increase; less
C. decrease; less
D. increase; more
5)
If 1-year interest rates for the next three years are expected to be 1, 1, and 1 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be
Select one:
A. 1 percent.
B. 2 percent.
C. 3 percent.
D. 4 percent.
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