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