Question

True and false

1.The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

2. The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.

3.If the estimated value of an asset is greater than the market price, you would want to buy the investment.

4.

A bond's price is determined by the issue's coupon rate, length to maturity, and the prevailing yield in the market.

5.The University of Michigan Consumer Sentiment Index is an example of a leading indicator.

Answer 1

1.The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

TRUE

This is the reason why the bonds are called fixed income securities.

2. The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.

TRUE

The term structure of interest rates constantly updates the current yield and the maturity of the bonds. The changes in the yield curve does have some economic implications such as an inverting yield curve indicates a possible recession.

3.If the estimated value of an asset is greater than the market price, you would want to buy the investment.

TRUE

If the estimated value of an asset is greater than the market price, then the asset is said to be underpriced and we would want to buy the asset and wait for the market to correctly price the asset.

4. A bond's price is determined by the issue's coupon rate (cpn is calculated form the coupon rate), length to maturity (n), and the prevailing yield(r) in the market.

TRUE

5. The University of Michigan Consumer Sentiment Index is an example of a leading indicator

TRUE

The statement is self-explanatory