Question

QUESTION 2

1. The nature of interest reflects the fact that $1 today (holding all other factors constant) is worth more us than $1 in the future.

True

False

1 points   

QUESTION 3

1. To calculate future values you must calculate the effects of compounding.

True

False

1 points   

QUESTION 4

1. For financial instruments that have some structure of payoffs in the future, the price of the instrument and the interest rate are inversely related.

True

False

1 points   

QUESTION 5

1. Unlike a coupon bond, a discount bond has no income stream to the holder; only a final payment.

True

False

1 points   

QUESTION 6

1. If the coupon on a bond is $50, we would say that this is the interest payment on the bond, regardless of its market price.

True

False

1 points   

QUESTION 7

1. If you know the face value (or future value) of a bond and you know its current market price, you can calculate the bond’s yield to maturity.

True

False

1 points   

QUESTION 8

1. A “consol” is a peculiar kind of bond that never matures.

True

False

1 points   

QUESTION 9

1. Nominal interest rates would be the same as real interest rates as long as inflation is expected to be zero.

True

False

1 points   

QUESTION 10

1. The Fisher Equation is the formula that relates nominal interest rates to real interest rates and is named for a U.S. economist named Irving Fisher.

True

False

Answer 1

Answer 2

True- Value of $1 will increase in future by an amount= interest value.

Answer 3

True - Future value is calculated by calculating the effects of compounding on the initial value

Answer 4

True - When the interest rate is high the opportunity cost of capital is high hence the present value of the instrument reduces thus the price falls

Answer 5

False- Discount Bond is a bond of which the market price is lower than the face value. It may or may not be paying coupon

Answer 6

True- Coupon represents the annual interest payment on the bond irrespective of the market price

Answer 7

False- To calculate the Yeild to Maturity we need face value, present value, coupon rate and time for maturity

Answer 8

True- Consol is a type of Bond that never matures and continue to pay coupon

Answer 9

True - Real Interest rate = Nominal Interest rate - Inflation Rate. If inflation is 0, then Real Interest rate = Nominal Interest rate

Answer 10

True- The Real Interest rate = Nominal Interest rate - Inflation Rate.is known as Fisher Equation and is named on US economist Irving Fisher.