B) a large interest-rate risk C) rate-of-return risk D) yield-to-maturity risk Answer: A
AACSB: Analytical Thinking
18) All bonds that will not be held to maturity have interest rate risk which occurs because of the change in the price of the bond as a result of A) interest-rate changes.
B) changes in the coupon rate. C) default of the borrower.
D) changes in the asset's maturity date. Answer: A
AACSB: Application of Knowledge
19) Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%. Should you follow his advice?
Answer: It depends on where you think interest rates are headed in the future. If you think
interest rates will be going up, you should not follow your uncle's advice because you would then have to discount your bond if you needed to sell it before the maturity date. Long-term bonds have a greater interest-rate risk. AACSB: Reflective Thinking
4.3 The Distinction Between Real and Nominal Interest Rates
1) The ________ interest rate is adjusted for expected changes in the price level. A) ex ante real B) ex post real C) ex post nominal D) ex ante nominal Answer: A
AACSB: Application of Knowledge
2) The ________ interest rate more accurately reflects the true cost of borrowing. A) nominal B) real C) discount D) market Answer: B
AACSB: Analytical Thinking
3) The nominal interest rate minus the expected rate of inflation A) defines the real interest rate.
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.
D) defines the discount rate. Answer: A
AACSB: Analytical Thinking
4) When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. A) nominal; lend; borrow B) real; lend; borrow C) real; borrow; lend D) market; lend; borrow Answer: C
AACSB: Reflective Thinking
5) The interest rate that describes how well a lender has done in real terms after the fact is called the
A) ex post real interest rate. B) ex ante real interest rate. C) ex post nominal interest rate. D) ex ante nominal interest rate. Answer: A
AACSB: Analytical Thinking
6) The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation. A) Fisher equation B) Keynesian equation C) Monetarist equation D) Marshall equation Answer: A
AACSB: Application of Knowledge
7) If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is A) 2 percent. B) 8 percent. C) 10 percent. D) 12 percent. Answer: D
AACSB: Analytical Thinking
8) In which of the following situations would you prefer to be the lender? A) The interest rate is 9 percent and the expected inflation rate is 7 percent. B) The interest rate is 4 percent and the expected inflation rate is 1 percent. C) The interest rate is 13 percent and the expected inflation rate is 15 percent. D) The interest rate is 25 percent and the expected inflation rate is 50 percent. Answer: B
AACSB: Analytical Thinking
9) In which of the following situations would you prefer to be the borrower? A) The interest rate is 9 percent and the expected inflation rate is 7 percent. B) The interest rate is 4 percent and the expected inflation rate is 1 percent. C) The interest rate is 13 percent and the expected inflation rate is 15 percent. D) The interest rate is 25 percent and the expected inflation rate is 50 percent. Answer: D
AACSB: Analytical Thinking
10) If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) 7 percent. B) 22 percent. C) -15 percent. D) -8 percent. Answer: D
AACSB: Analytical Thinking
11) If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -5 percent. B) -2 percent. C) 2 percent. D) 12 percent. Answer: A
AACSB: Analytical Thinking
12) If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -3 percent. B) -2 percent. C) 3 percent. D) 7 percent. Answer: C
AACSB: Analytical Thinking
13) In the United States during the late 1970s, the nominal interest rates were quite high, but the real interest rates were negative. From the Fisher equation, we can conclude that expected inflation in the United States during this period was A) irrelevant. B) low. C) negative. D) high. Answer: D
AACSB: Reflective Thinking
14) The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as A) the real interest rate. B) the nominal interest rate. C) the rate of inflation. D) the rate of deflation. Answer: A
AACSB: Analytical Thinking
15) Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Indexed Security and the yield on a nonindexed Treasury security provides insight into
A) the nominal interest rate. B) the real interest rate.
C) the nominal exchange rate. D) the expected inflation rate. Answer: D
AACSB: Analytical Thinking
16) Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Indexed Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is A) 3 percent. B) 5 percent. C) 8 percent. D) 11 percent. Answer: B
AACSB: Analytical Thinking
17) Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.
Answer: Even though the nominal rate for the mortgage appears high, the real cost of
borrowing the funds is -1%. Yes, under this circumstance it would be reasonable to make this purchase.
AACSB: Reflective Thinking
4.4 Web Appendix: Measuring Interest-Rate Risk: Duration
1) Duration is
A) an asset's term to maturity.
B) the time until the next interest payment for a coupon bond. C) the average lifetime of a debt security's stream of payments. D) the time between interest payments for a coupon bond. Answer: C
AACSB: Application of Knowledge
2) Comparing a discount bond and a coupon bond with the same maturity A) the coupon bond has the greater effective maturity. B) the discount bond has the greater effective maturity.
C) the effective maturity cannot be calculated for a coupon bond. D) the effective maturity cannot be calculated for a discount bond. Answer: B
AACSB: Reflective Thinking
3) The duration of a coupon bond increases A) the longer is the bond's term to maturity. B) when interest rates increase.
C) the higher the coupon rate on the bond. D) the higher the bond price. Answer: A
AACSB: Reflective Thinking
4) All else equal, when interest rates ________, the duration of a coupon bond ________. A) rise; falls B) rise; increases C) falls; falls
D) falls; does not change Answer: A
AACSB: Reflective Thinking
5) All else equal, the ________ the coupon rate on a bond, the ________ the bond's duration. A) higher; longer B) higher; shorter C) lower; shorter D) greater; longer Answer: B
AACSB: Reflective Thinking
6) If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio? A) 12 years B) 7 years C) 6 years D) 5 years Answer: C
AACSB: Analytical Thinking
7) An asset's interest rate risk ________ as the duration of the asset ________. A) increases; decreases B) decreases; decreases C) decreases; increases
D) remains constant; increases Answer: B
AACSB: Reflective Thinking
米什金 货币金融学 英文版习题答案chapter 4英文习题
