True/False 1.Suppose that you deposited X dollars today to receive a 1.2X dollars in two years...

True/False

1.Suppose that you deposited X dollars today to receive a 1.2X dollars in two years from now, then the annual interest rate is above or equal to 10%

T/F

2.Capital markets deal in short-term debt instruments, while money markets deal in longer term debt and equity instruments

T/F

3.Risk premium: the spread between the interest rates on bonds with default risk and the interest rates on different same maturity treasury bonds

T/F

Solutions

Expert Solution

1.Suppose that you deposited X dollars today to receive a 1.2X dollars in two years from now, then the annual interest rate is above or equal to 10%

False

Present Value = $x

Future Value at 10% interest rate = PV*(1+r%)n

FV = x*1.12

FV = $1.21x

The annual Interest Rate is below 10% as at or above 10%, the FV will be more than 1.2 times

2.Capital markets deal in short-term debt instruments, while money markets deal in longer term debt and equity instruments

False

Capital Market are the markets in which long term securities are dealt which for more than 1 year while in money market, securities are dealt for 1 or less than 1 year.

3.Risk premium: the spread between the interest rates on bonds with default risk and the interest rates on different same maturity treasury bonds

True

Risk premium refers to the premium on the level of risk undertaken. It is basically difference between riskless rate and the market rate of security.

Rahul Sunny answered 4 weeks ago

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