Question
Hi, do you have the answers for the course International Financial Markets? This is my homework: Thanks! 1) A perpetuity that pays $250 per year
Hi, do you have the answers for the course International Financial Markets? This is my homework: Thanks!
1) A perpetuity that pays $250 per year at an interest rate of 4% would have a market price equal to
A) $6,250.
B) $25,000.
C) $2,500.
D) $62,500.
2) Which of the following is a correct description of Libor?
A) an average interest rate from sixteen large banks are paying to borrow funds from other large banks.
B) an interest rate calculated by the British Banker's Association every day at 11 a.m. London time
C) an interest rate tied to corporate and mortgage loan contracts valuing roughly $400 trillion
D) all of the above
3) The risk of variations in the market value of a financial instrument due to changes in interest rates is minimized when the instrument is a
A). zero-coupon bond.
B) fixed term to mature bond.
C) perpetuity
D) Libor-based financial instrument.
4) If you have a bond that pays a lump sum at the time of maturity, it is
A) a safer investment than a perpetuity.
B) worth more than a bond with coupon payments.
C) riskier than a bond with coupon payments.
D) called a zero-coupon bond.
5) Suppose you have two investments to choose from:
1) A one-year $20,000 zero coupon bond
2) A two-year $20,000 zero coupon bond
What is the difference between the prices of these bonds if the interest rate rises from 4% to 5%?
A) You would gain $350.54 more on the two year bond.
B) You would lose $167.39 more on the one year bond.
C) You would lose $167.39 more on the two year bond.
D) You would lose $183.15 more on the one year bond.
6) When investigating the term structure of interest rates, the bonds compared are
A) identical except for their maturity dates.
B) identical in maturity, but differ in terms of liquidity and risk.
C) identical in terms of risk, but differ in terms of tax characteristics.
D) identical except for their liquidity.
7)
Maturity
Yield
1 month
0.06
3 months
0.1
6 months
0.3
1 year
0.4
2 years
0.5
5 years
0.8
10 years
1.2
30 years
2.4
Suppose the table above represents the average current yield for various international bonds, what would the shape of the yield curve show?
A) a normal, upward sloping yield curve
B) a normal, inverted yield curve
C) an unusually inverted yield curve
D) a downward sloping yield curve
8) Which of the following theories does not help to explain the why the yield curve follows its traditional shape?
A) the Segmented Markets theory
B) the Rational Expectations theory
C) the Preferred Habitat theory
D) All of these help to explain the yield curve's shape.
9) If financial instruments of differing terms to maturity are not perfect substitutes, then
A) they could be seen as trading in different markets.
B) an upward-sloping yield curve is the only explanation.
C) a downward-sloping yield curve would be the normal occurrence.
D) individuals would be indifferent to changes in their interest rates.
10) Which of the theories explaining the yield curve can explain the slope of the yield curve but cannot explain why it is traditionally upward sloping?
A) the Segmented Markets theory
B) the Expectations theory
C) the Preferred Habitat theory
D) Uncovered Interest Rate parity
11) Which of the following theories includes both the concept of imperfect substitutability of financial instruments of varying terms as well as allowing for a preference for shorter-term instruments?
A) the Segmented Markets theory
B) the Expectations theory
C) the Preferred Habitat theory
D) Uncovered Interest Rate parity
12) If an investor expects to get a higher yield for a longer-termed instrument, it is called a
A) yield curve.
B) risk premium.
C) risk preference.
D) term premium.
13) What characteristics of bonds define its risk structure?
A) default risk, tax characteristics, and liquidity
B) default risk, term to maturity, and yield
C) default risk, liquidity, and parity
D) maturity date, premium levels, and coupon payments
14) Which of the following bond offerings would be most likely to experience excess returns?
A) a Mexican bond offering in pesos
B) a German bond offering in euros
C) a Japanese bond offering in yen
D) an Australian bond offering in British pounds
15) If the nominal interest rate is 4% and the expected rate of inflation is 6%, then the real interest rate is
A) 2%.
B) 0%.
C) -2%.
D) 24%.
16) Real interest rate parity implies that
A) real rates of return will be equal when expected inflation rates converge.
B) real rates of return on similar financial instruments in two different nations should be equal.
C) uncovered interest rate parity will never hold.
D) absolute purchasing power parity holds.
17) A derivative security is
A) an instrument whose value is derived from the returns on another financial instrument or market.
B) a security based on currency markets.
C) a security with very little risk.
D) a financial tool which eliminates risk.
18) When do derivatives increase overall risk?
A) when investors use them to gamble against market trends
B) when firm try to use them to form a perfect hedge
C) when banks use them to cover possible foreign exchange exposure
D) Derivatives always increase overall risk.
19) An agreement to deliver a standardized amount of a commodity at a specified date is called
A) a forward contract.
B) a futures contract.
C) an option.
D) a swap.
20) The derivative that allows a firm to buy a specified amount of a financial instrument if it chooses to do so within a range of future dates is known as
A) a forward contract.
B) a futures contract.
C) an option.
D) a swap.
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