16. Interest rate (price) risk occurs when

a. The maturity of an instrument is less than the investors holding period

b. The maturity of an instrument is greater than the investors holding period

c. The maturity of an instrument is the same as the investors holding period

d. The yield curve slopes upward

17. A drop in interest rates

a. Affects the prices of short-term securities more than long-term securities

b. Affects the prices on short-term securities less than long-term securities

c. Affects the prices of short-term securities the same as long-term securities

d. Cannot affect prices of securities

18. A zero-coupon securitys duration

a. Is equal to its maturity

b. Does not vary with interest rates

c. Is longer than that of a comparable-maturity coupon security

d. All of the above

19. The present value formula is used to

a. Determine the current price of an asset when the cash flows and discount rate are known

b. Determine the amount of regular fixed payments on a loan when the interest rate and loan amount are known

c. Determine the yield to maturity on a financial instrument when the current price and cash flows are known

d. All of the above

Ch 5

20. If the yield curve is positively sloped when averaged for long periods of time, this implies that

a. The expectations hypothesis is the best explanation of this phenomenon

b. Inflation dominates the yield curve

c. The liquidity (term) premium hypothesis is the best explanation of this phenomenon

d. Yield curves cannot be positively sloped over long periods of time