Exam 4: The Meaning of Interest Rates

If you expect the inflation rate to be 12 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 a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is ________.

The Fisher equation states that ________.

In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because ________.

The yield to maturity for a discount bond is ________ related to the current bond price.

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Comparing a discount bond and a coupon bond with the same maturity, ________.

The return on a 5 percent coupon bond that initially sells for $1000 and sells for $950 next year is ________.

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