Exam 13: Equity Valuation

The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. Maturity (Years) Price 1 \ 943.40 2 \ 881.68 3 \ 808.88 4 \ 742.09 What is,according to the expectations theory,the expected forward rate in the third year?

The market segmentation theory of the term structure of interest rates

Given the yield on a 3 year zero-coupon bond is 7.2% and forward rates of 6.1% in year 1 and 6.9% in year 2,what must be the forward rate in year 3?

An inverted yield curve implies that:

Forward rates ____________ future short rates because ___________.

The Liquidity Preference Theory states that

The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. Maturity (Years) Price 1 \ 925.16 2 \ 862.57 3 \ 788.66 4 \ 711.00 What is,according to the expectations theory,the expected forward rate in the third year?

The concepts of spot and forward rates are most closely associated with which one of the following explanations of the term structure of interest rates.

The yield curve is a component of

According to the "liquidity preference" theory of the term structure of interest rates,the yield curve usually should be:

Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 (today) 5\% 1 7\% 2 9\% 3 10\% What is the price of 3-year zero coupon bond with a par value of $1,000?

Given the following pattern of forward rates: Year Forward Rate 1 5\% 2 6\% 3 6.5\% If one year from now the term structure of interest rates changes so that it looks exactly the same as it does today,what would be your holding period return if you purchased a 3-year zero coupon bond today and held it for one year?

The yield curve shows at any point in time:

Which of the following is a reason that bond prices do not conform exactly to the present value of the bond's cash flows? I.A call feature affects the bond's price. II.After-tax cash flows may be different for different investors. III.Canada Customs and Revenue Agency may impute a "built-in" interest payment. IV.Some investors might choose to sell the bond before its maturity date.

Term structure of interest rates is the relationship between what variables? What is assumed about other variables? How is term structure of interest rates depicted graphically?

Assuming the forecasts implicit in a yield curve come to pass,an inverted yield curve would be most favorable for

An inverted yield curve is one

An upward sloping yield curve is a(n)_______ yield curve.

A liquidity premium

Which of the following combinations will result in a sharply increasing yield curve?