Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

You win your state lottery.The lottery officials offer you the option of taking your winnings in one lump-sum payment, or fixed annual payments for the next 20 years.The sum of the 20 annual payments is larger than the lump-sum payment.Before deciding, what are the key factors you will want to consider that could influence your decision?

Use our model of the bond market (supply and demand) to explain what happens if the U.S.economy continues to grow at robust rates.

Which of the following would lead to a decrease in bond demand?

Consider the bonds below.Which is subject to the greatest interest-rate risk?

A decrease in the nation's wealth, all other factors constant, would cause:

A student receives a five-year loan to pay for a $2,000 used car.The lender and the student agree to an 8% interest rate on a fixed-rate loan.Expected inflation was estimated to equal 2.5%, but unexpectedly decreases to 2%.Which of the following is true?

Which of the following is not a reason why the yield to maturity can differ from the current yield?

The U.S.Treasury offers several ways to purchase U.S.government bonds.There are the traditional coupon bonds and Treasury Inflation-Indexed Securities.How do these bonds differ from their traditional counterparts?

The bond dealer's spread is:

If interest rates are expected to fall, bond prices will:

Consider a one-year corporate bond that has a 20% probability of default.The payoff on the bond is $2,000 if the corporation does not default.The interest rate is 10%.If buyers of this bond are risk-neutral, this bond will sell for:

As bond prices increase:

A $1,000 face value bond, with an annual coupon of $40, one year to maturity and a purchase price of $980 has a:

A $1000 face value bond, with one year to maturity that sells for $950 and has a $40 annual coupon has a:

When expected inflation increases, for any given nominal interest rate the:

If interest rates are expected to rise, the bond prices will:

When expected inflation increases, for any given nominal interest rate the:

How can a bond mutual fund report a return of over 13% when the coupon rate of the bonds they are holding are just 7% and interest rates are falling?

The holding period return has relevance because:

When expected inflation increases, for any given nominal interest rate the: