Exam 4: The Meaning of Interest Rates

Which of the following is true concerning the distinction between interest rates and returns?

The interest rate that equates the present value of payments received from a debt instrument with its value today is the ________.

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a ________.

Your friend tells you that she bought a 10-year to maturity discount bond that she plans to hold until maturity in order to finance her daughter's university education. She also tells you that she is worried that due to interest-rate-risk she may suffer significant capital losses if interest rates increase. Are her fears justified?

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is ________.

If $22050 is the amount payable in two years for a $20000 simple loan made today, the interest rate is ________.

A $10000 8 percent coupon bond that sells for $10000 has a yield to maturity of ________.

Which of the following $1000 face-value securities has the highest yield to maturity?

A discount bond selling for $15000 with a face value of $20000 in one year has a yield to maturity of ________.

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is ________.

All else equal, the ________ the coupon rate on a bond, the ________ the bond's duration.

Assuming the same coupon rate and maturity length, when the interest rate on a Real Return Bond is 3 percent, and the yield on a nonindexed Canada bond is 8 percent, the expected rate of inflation is ________.

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond.

Assuming the same coupon rate and maturity length, the difference between the yield on a Real Return Bond and the yield on a Canada bond provides insight into ________.

What is the return on a 5 percent coupon bond that initially sells for $1000 and sells for $900 next year?

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

A discount bond ________.

The price of a consol equals the coupon payment ________.

A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.

The ________ interest rate more accurately reflects the true cost of borrowing.