Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation?

Interest-rate risk is the uncertainty that an investor faces because the interest rate at which a bond's future coupon payments can be invested is unknown.

For simple loans,the simple interest rate is ________ the yield to maturity.

The current yield goes up as the price of a bond falls.

The duration of a ten-year,10 percent coupon bond when the interest rate is 10 percent is 6.76 years.What happens to the price of the bond if the interest rate falls to 8 percent?

A long-term bond's price is less affected by interest rate movements than a short-term bond's price.

The interest rate that financial economists consider to be the most accurate measure is the

What is interest-rate risk and how is it measured?

An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of

What is the distinction between the nominal interest rate and the real interest rate? Which is a better indicator of incentives to borrow and lend? Why?

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,100 one year later is

What happened in Japan in the late-1990s to generate negative rates on the government debt?

A bonds with a 5% coupon as has a yield to maturity of 5%.

How is a bond's current yield calculated? Why is current yield a more accurate approximation of yield to maturity for a long-term bond than for a short-term bond?

The yield to maturity of a one-year,simple loan of $400 that requires an interest payment of $50 is

A coupon bond pays the owner of the bond

The yield to maturity of a one-year,simple loan of $500 that requires an interest payment of $40 is

A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a

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

The real interest rate is actually the ex ante real interest rate because it is adjusted for actual changes in the price level.

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 one year later?