Exam 4: Understanding Interest Rates

The riskiness of an asset's returns due to changes in interest rates is ________.

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

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 ________.

Interest-rate risk is the riskiness of an asset's returns due to ________.

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?

Economists consider the ________ to be the most accurate measure of interest rates.

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.

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

If a $5000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is ________.

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

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

If you expect the inflation rate to be 4 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 ________.

What is a coupon bond? Describe its basic properties.

All else equal, when interest rates ________, the duration of a coupon bond ________.

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

The price of a consol equals the coupon payment ________.

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?

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.

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.