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

The U.S.Treasury has introduced bonds where the return is indexed to the consumer price index.We should expect that these bonds, relative to other U.S.Treasury bonds, will have:

In considering the holding period return, the longer the term of the bond the:

An increase in the nation's wealth, all other factors constant, would cause:

An increase in the nation's wealth, all other factors constant, would cause the:

The holding period return on a bond:

Notice the following model of a bond market.In each situation given, explain what happens to the bond price and yield and why.

If the annual interest rate is 5% (.05), the price of a three-month Treasury bill would be:

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

U.S.government bonds that provide for bondholders to receive a fixed rate of interest plus the change in the consumer price index were designed to remove:

As general business conditions deteriorate, all other factors constant:

Many people are worried that, with the growing number of people that will be retiring in the U.S.over the next 40 years, the Social Security System will need to borrow large amounts of money.If we assume that Social Security taxes and the current eligibility age remain constant, explain the likely impact this will have on bond markets.

When looking at Treasury note quotes in the Wall Street Journal, you notice that a Treasury note has an "i" following the maturity date.This indicates that this financial instrument:

Consider the factors that affect bond demand and bond supply.Describe how the following are likely to change during a period of robust economic growth: wealth, default risk, and general business conditions.For each, state how the factor is likely to change, and discuss the implications for bond demand/supply, bond price, and yield.Bond prices tend to decrease during periods of high economic growth.What does this reveal about which of these factors is important?

The bid price for a bond quote is:

Which of the following statements is most accurate?