Finance exam 2 part 2

Given a positive rate of inflation

The real rate must be less than the nominal

True

The real rate of return has minimal, if any, affect on the slope of the term structure of interest rates.

False

The term structure of interest rates and the time to maturity are always directly related.

True

The term structure of interest rates includes both an inflation premium and an interest rate risk premium.

Taxability, Default Risk

Causes the yields on a corporate bond to differ from those on a comparable Treasury security

True

Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates.

Bonds Issued by U.S. gov

Which bonds are considered to be free of default risk?

Coupon rates

collar of a floating bond refers to the min and max

Interest Rate Risk

floating bond tend to have less of as compared to a fixed rate coupon

Treasury Bonds

generally issued semiannually, high liquid and have a "tick size" of 1/32

Cat bonds

insurance companies fund excessive claims

"fallen angel"

is a bond that has moved from investment grade to speculative grade

Municipal Bonds

pay interest that is federally tax- free

bond ratings

split rate bonds are called crossover bonds