1. Which of the following statements is correct? (a) Inflation decreases the purchasing power of an investment (b) The real interest rate determines the rate of money growth of an investment (c) The nominal interest rate increases the purchasing power of an investment (d) None of the above 2. The price of a bond is (a) equal to the present value of all payments the bond is expected to make (b) equal to the future value of all payments the bond is expected to make (c) equal to the bond's face value (d) none of the above 3. Which of the following is true regarding the yield curve? (a) It is a plot of interest rates and bonds of different maturities (b) The yield curve is always upward sloping (c) An yield curve can only be plotted for US government bonds (d) none of the above 4. If the real interest rate is 3% and inflation is -3% (that is inflation is negative) what is the nominal interest rate? (a) 0% (b) 6% (c) 3% (d) -3% 5. Which of the following is true regarding the risk-free interest rate? (a) It is the interest rate paid on US government bonds (b) It does not carry any default risk (risk of non-payment) (c) It is the lowest possible return on any investment with the same duration (maturity) (d) All of the above