Exam 19: Financial markets and asset prices

Assume the market interest rates stays at 10% over the next two years.What is the present discounted value of a two-year maturity bond that has a coupon rate of 10% and a face value of $2,000?

The term structure of interest rates

Assume a two-year maturity bond with a face value of $1,000 and a coupon rate of 10%.If the current market interest rate is i = 8%, we know that the price of this bond will be

The fact that stock prices follow a random walk implies that

If short-term interest rates over the next three years are assumed to be i? = 4%, i? = 5.5%, and i? = 4%, what do you expect the three-year rate to be under the expectations theory?

Assume U.S.interest rates decrease but interest rates in other countries remain the same.Which of the following is FALSE?

Assume you put $2,000 in a bank account that pays a compounded yearly interest of 4%.Approximately how much would your savings be worth after four years?

The concept of arbitrage implies that

Assume the market interest rate is 5% and a one-year maturity bond pays a coupon valued of $420.If the current price of the bond were $4,400, what would the face value of this bond have to be?

If the current market interest rate rises from 4% to 5%, the price of a ten-year maturity bond will

Suppose a consol (a perpetual bond) that sells for $2,000 promises to pay $80 a year forever.What is its yield?

Which of the following statements is FALSE?

A booming stock market is good for capital investment since

Assume you own a consol (a perpetual bond) and a five-year maturity bond, each with the same current yield.What will happen if the market interest rate decreases from 10% to 8%?

Assume a relative has promised to pay you $10,000 exactly ten years from today.If you estimate that the market interest rate will average about 6% over the next ten years, approximately how much would the $10,000 be worth to you in today's money, assuming there were no inflation?

If a consol that pays $200 for each year you own it currently costs $5,000, what is the current market interest rate?

If your bank pays you a nominal interest rate of 2.5% on funds in your savings account and the rate of inflation is 4%, what is the real rate of return on your savings?

The relation between international interest rate differentials and changes in exchange rates is called

The term "uncovered interest parity" refers to

A downward-sloping yield curve is often seen as an indication that