Finance 450 Quiz 3

What three shapes can an interest rate graph be?

-downward sloping. -upward sloping. -hump shaped.

Which of the following are features of municipal bonds?

-the interest on municipal bonds is exempt from federal taxes. -the interest on municipal bonds is, in some cases exempt from state taxes in the state it was issued. -they are issued by state and local governments only.

A corporate bond's yield to maturity:

-the maximum reward for owning debt is fixed. -equity represents an ownership interest.

The degree of interest rate risk

-the relationship between nominal rates and time to maturity. -the pure time value of money.

Which of the following are usually included in a bonds indenture?

-the total amount of bonds issued. -the repayment arrangements.

Which of the following terms apply to bonds?

-time to maturity -par value -coupon rate

The US government borrows money by issuing:

-treasury bonds. -treasury notes.

What are municipal bonds?

Bonds that have been issued by state or local governments.

What does a Treasury yield curve show?

It shows the yield for different maturities of Treasury notes and bonds.

What is the nominative rate of return on an investment?

It's the actual percentage change in the dollar value unadjusted for inflation.

Equity represents an __________ interest of a firm.

Ownership

_________ type of debt is given preference in the event of default.

Senior -seniority indicates preference in position over other lenders.

The relationship between nominal rates, real rates and inflation is called:

The Fisher Effect.

Treasury Bond

have an original maturity range longer that 10 years, up to 30 years.

Treasury Note

have an original maturity range of 2-10 years.

A zero- coupon bond is a bond that:

makes no interest payments.

The term structure of interest rates examines the

relationship between short-term and long-term interest rates.

Term Structure of Interest Rates

the relationship between nominal interest rates on default-free, pure securities and time to maturity, that is, the pure time value of money.