Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation

The concept of ________ is based on the notion that a dollar paid to you in the future is less valuable to you than a dollar today.

The riskiness of an asset's return that results from interest rate changes is called

What is the purpose of discounting cash flows?

When the lender provides the borrower with an amount of funds that must be repaid to the lender at the maturity date, along with an additional payment for the interest, it is called a ________.

The nominal interest rate minus the expected rate of inflation

Unless a bond defaults, an investor cannot lose money investing in bonds.

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,100 one year later is

The Fisher equation states that

The change in the bond's price relative to the initial purchase price is

The yield to maturity on a consol bond that pays $100 yearly and sells for $500 is

A bond's future payments are called its

(I)The average lifetime of a debt security's stream of payments is called duration. (II)The duration of a portfolio is the weighted average of the durations of the individual securities, with the weights reflecting the proportion of the portfolio invested in each.

The current yield goes up as the price of a bond falls.

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 one year later?

Discounting the future is the procedure used to find the future value of a dollar received today.

Which of the following are generally true of all bonds?

A coupon bond pays the owner of the bond

Which of the following are generally true of all bonds?

Which of the following are true for a coupon bond?

A ________ is a type of loan that has the same cash flow payment every year throughout the life of the loan.