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

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

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?

The bond demand curve slopes downward because:

If the quantity of bonds supplied exceeds the quantity of bonds demanded, bond prices:

When expected inflation decreases for any given nominal interest rate, all of the following occur except:

If the U.S.government's borrowing needs increase, in the bond market this would be seen as:

An increase in expected inflation for any given nominal interest rate will cause:

Interest-rate risk would not matter to which of the following bondholders?

A $1000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has:

The price (P) of a consol offering an annual coupon payment (C) is best expressed by:

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?

Once you buy a coupon bond, which of the following can change?

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

When the price of a bond is below the face value, the yield to maturity:

If the U.S.government's borrowing needs increase, all other factors constant:

Suppose a Treasury bill has a purchase price of $9,865.50; a face value of $10,000 and 90 days to maturity.Calculate the yield to maturity and the yield on a discount basis.

When the price of a bond equals the face value:

If the federal government were to offer larger tax breaks on the purchase of new equipment for businesses, all other factors constant, we would expect to see:

If the risk on foreign government bonds increases relative to U.S.government bonds, the price of U.S.government bonds should:

If you were going to issue bonds, would you prefer to be in a country where the average inflation rate is 3% inflation but fluctuates wildly, or in a country with a higher, 4% expected inflation rate that is stable (meaning it's always 4%).Explain.