Chapter 4 HW

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If a security pays​ $55 in one year and​ $133 in three​ years, its present value is​ $150 if the interest rate is A. 5 percent. B. 10 percent. C. 12.5 percent. D. 15 percent.

B

Assuming the same coupon rate and maturity​ length, the difference between the yield on a Treasury Inflation Indexed Security and the yield on a nonindexed Treasury security provides insight into A. the real interest rate. B. the nominal exchange rate. C. the expected inflation rate. D. the nominal interest rate.

C

The concept of​ ________ is based on the common−sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. A. future value B. deflation C. present value D. interest

C

The present value of an expected future payment​ ________ as the interest rate increases. A. is constant B. rises C. falls D. is unaffected

C

A​ ________ is bought at a price below its face​ value, and the​ ________ value is repaid at the maturity date. A. coupon​ bond; discount B. discount​ bond; discount C. coupon​ bond; face D. discount​ bond; face

D

In which of the following situations would you prefer to be the​ lender? A. The interest rate is 13 percent and the expected inflation rate is 15 percent. B. The interest rate is 4 percent and the expected inflation rate is 1 percent. C. The interest rate is 9 percent and the expected inflation rate is 7 percent. D. The interest rate is 25 percent and the expected inflation rate is 50 percent.

B

To pay for​ college, you have just taken out a​ $1,000 government loan that makes you pay​ $126 per year for 25 years.​ However, you​ don't have to start making these payments until you graduate from college two years from now. Why is the yield to maturity necessarily less than​ 12% (this is the yield to maturity on a normal​ $1,000 fixed-payment loan in which you pay​ $126 per year for 25​ years)? A. This is the case because market interest rates are less than​ 12%. B. This is the case because the loan has a government guarantee. C. This is the case because the first payment due begins at a future date. D. This is the case because of the known effects of inflation.

C

If the nominal interest rate is 2​% and the expected rate of inflation is 3​%, then the real interest rate is A. 00​%. B. 33​%. C. 11​%. D. −1​%. E. 22​%.

D

Which of the following​ $1,000 faceminus−value securities has the highest yield to​ maturity? A. A 12 percent coupon bond selling for​ $1,100 B. A 5 percent coupon bond selling for​ $1,000 C. A 10 percent coupon bond selling for​ $1,000 D. A 12 percent coupon bond selling for​ $1,000

D


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