Exam 4: Understanding Interest Rates

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

An asset's interest rate risk ________ as the duration of the asset ________.

The ________ is the final amount that will be paid to the holder of a coupon bond.

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.

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

Which of the following is true of fixed payment loans?

If a financial institution has 50 percent of its portfolio in a bond with a five-year duration and 50 percent of its portfolio in a bond with a seven-year duration,what is the duration of the portfolio?

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?

In which of the following situations would you prefer to be the borrower?

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 ________.

Which of the following $1,000 face-value securities has the highest yield to maturity?

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a ________.

The price of a consol equals the coupon payment ________.

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of ________.

Which of the following $1,000 face-value securities has the highest yield to maturity?

All of the following are examples of coupon bonds except ________.

What is a coupon bond? Describe its basic properties.

A relative has just won a state lottery paying $20 million in installments of $1 million per year for twenty years.Your relative states that she is $20 million richer.Is she correct? Create a simple example for two years to illustrate your position.

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?

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.