Q1 Which of the following is true about returns and interest rates?

[1] Returns are the increases in the interest rates.

[2] There is no difference between returns and interest rates.

[3] A rise in interest rates will give good returns on a bond, since the price of bonds has increased.

[4] The return on a bond can be negative if interest rates increase.

Q2 If an investor purchased a bond that has 30 years to maturity and the interest rate rises from 10% to 20%, the investor would have experienced ...

[1] capital loss.

[2] capital gain.

[3] good investment.

[4] no change in return.

Q3 Real interest rate ...

[1] makes no allowance for inflation.

[2] is synonymous with nominal interest rate.

[3] reflects the true cost of borrowing.

[4] is not adjusted for inflation.

Q4 Which of the following are the factors that determine the demand for an asset?

[1] wealth, risk and liquidity

[2] wealth, expected return and investment

[3] government deficit, expected inflation and risk

[4] liquidity, risk and investment

Q5 A plot of the yields on bonds with different terms to maturity but same risk is called a ...

[1] differing curve.

[2] yield curve.

[3] supply curve.

[4] market equilibrium curve.

Q6 One of three theories that explain the term structure of interest rates is ...

[1] yield curve theory.

[2] expected prices theory.

[3] liquidity preference theory.

[4] segmented markets theory.

Q7 Interest rate risk is the ...

[1] decline in returns due to changes in interest rates.

[2] decline in returns due to a reduction in interest rates.

[3] changes in returns due to a reduction in interest rates.

[4] increase in returns due to a reduction in interest rates.