q1) Letting i denote the yield to maturity on coupon bonds, which situation below should a rational investor prefer to be in if he is planning to be a LENDER?

a. i = 2 percent and the expected inflation rate = -2 percent

b. i = 12 percent and the expected inflation rate = 10 percent

c. i = 8 percent and the expected inflation rate = 9 percent

d. i = 6 percent and the expected inflation rate = 1 percent

Q2) The observed tendency for the form of money to evolve from commodity money to fiat money increases the fragility of money because *

a. fiat money can lose much of its value in hyperinflations.

b. fiat money is unbacked, i.e., it is not collateralized by any commodity.

c. fiat money can lose much of its value if people lose confidence in its general acceptability as a means of payment.

d. all of the above.

e. only a and c.

Q3) INTEREST RATE RISK is the risk faced by in the form of *

a. a person contemplating a bond purchase; fluctuations in the real interest rate on bonds.

b. a person who has already bought a bond; uncertainty regarding fluctuations in the bonds yield to maturity during the holding period.

c. a person who has issued and sold a bond; fluctuations in the interest payments the bond issuer will have to make to the bond purchaser.

d. a person who is contemplating the issue and sale of a bond; fluctuations in the nominal interest rate on bonds