Description of this paper

The risk that interest rates will increase, and th...

Description

Solution


Question

The risk that interest rates will increase, and that increase will lead to a decline in the prices of outstanding bonds, is called "interest rate risk," or "price risk." a. True b. False . The risk that interest rates will decline, and that decline will lead to a decline in the income provided by a bond portfolio as interest and maturity payments are reinvested, is called "reinvestment rate risk." a. True b. False Pg 3 . The "yield curve" shows the relationship between bonds' maturities and their yields. a. True b. False . Because the maturity risk premium is normally positive, the yield curve is normally upward sloping. a. True b. False . Because the maturity risk premium is normally positive, the yield curve must have an upward slope. If you measure the yield curve and find a downward slope, you must have done something wrong. a. True b. False . If the Treasury yield curve were downward sloping, the yield to maturity on a 10-year Treasury coupon bond would be higher than that on a 1-year T-bill. a. True b. False . If the pure expectations theory is correct, a downward-sloping yield curve indicates that interest rates are expected to decline in the future. a. True b. False . An upward-sloping yield curve is often call a "normal" yield curve, while a downward-sloping yield curve is called "abnormal." a. True b. False . Since yield curves are based on a real risk-free rate plus the expected rate of inflation, at any given time there can be only one yield curve, and it applies to both corporate and Treasury securities. a. True b. False . Suppose the federal deficit increased sharply from one year to the next, and the Federal Reserve kept the money supply constant. Other things held constant, we would expect to see interest rates decline. a. True b. False Pg 4 . The Federal Reserve tends to take actions to increase interest rates when the economy is very strong and to decrease rates when the economy is weak. a. True b. False

 

Paper#6839 | Written in 18-Jul-2015

Price : $25
SiteLock