Practice True/False/Why Questions

Directions: Indicate T or F in the blank then provide a 1-2 sentence explanation

1. _____Moral hazard occurs between borrowers and lenders arises during the loan application stage.

2. ____ If you had a choice between purchasing (and holding to maturity) a par bond and a premium bond with the same maturity and risk, you would choose the par bond because the purchase of the premium bond results in a capital loss, i.e. you are purchasing the bond at a price above par.

3. ____The TIPS yield provides a direct measure of expected inflation over its maturity.

4. _____The expected return on a Treasury security and the actual return may differ if you do not hold the security to maturity.