A real rate of return is defined as a rate that has been adjusted for which one of the following? |
Inflation |
The term structure of interest rates represents the relationship between which of the following? |
Nominal rates on Treasury Securities and time to maturity |
Changes in interest rates affect Bond Prices. What compensates bond investors for this risk |
Interest rate risk premium |
Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? |
Default risk premium |
Which one of the following premiums is paid on a corporate bond due to its tax status? |
Taxability premium |
Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value? |
Liquidity premium |
Generally speaking, bonds issued in the US pay interest on an ___ basis? |
Semi-annual |
An upward-sloping term structure of interest rates indicates: |
The nominal rate is increasing even though the real rate is constant as the time to maturity increases |
If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be: |
Downward-sloping |
Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk? |
Interest rate risk premium |
Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected |
Default risk premium |
The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities? |
Maturity |
If your nominal rate of return is 8.4% and your real rate of return is 3.2%, what is the inflation rate? |
5.04% |
Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond? |
Real rate |
You invest 15,000$ today, compounded monthly, with an annual interest rate of 8.25%. What amount of interest will you earn in one year? |
1,285.38$ |
Which one of the following bonds is most apt to have the smallest or no liquidity premium? |
Treasury bill |
T or F: Reducing principal at a faster pace increases the overall interest paid on a loan? |
False |
T or F: Reducing principal at a faster pace reduces the overall interest paid on a loan? |
True |
T or F: The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is higher |
True |
T or F: Monthly interest on a loan is equal to the beginning balance times the periodic interest rate? |
True |
What happens if you increase your monthly payment above the required loan payment? |
You can significantly reduce the number of payments needed to pay off the loan |
Nominal interest rates are roughly speaking the sum of two major components. These components are ____ |
The real interest rate and expected inflation |
The Fisher Effect tells us that the true nominal rate is actually made up of three components. These three components are ___ |
The real rate, the inflation rate, and the product of the real rate and inflation rate |
T or F: The longer the loan, the greater the risk of nonpayment and the lower the interest rate the lender demands |
False |
Which of the below is not a major component of the term structure of interest rates? |
Default risk premium |
You have a 30 year fixed rate mortgage at an annual rate of 6.5%. Knowing that your mortgage payments are monthly, compute the effective annual rate that you are being charged on your mortgage |
6.7% |
Atlanta Markets has a semi-annual bond outstanding with a 9% annual coupon rate and a 9.57% yield to maturity. If the current rate of inflation is 2.3%, what is the real rate of return on this bond? |
7.11% |