6 If the nominal interest rate per year is 10 percent and the inflation rate is 4 percent, what is the real rate of interest?

6

If the nominal interest rate per year is 10 percent and the inflation rate is 4 percent, what is the real rate of interest?

a. 10.0 percent

b. 4.1 percent

c. 5.8 percent

d. 14.0 percent

7

As CFO of your corporation, you would prefer (all else equal) to see the price of your corporation’s bonds

a. increase, indicating that bond investors view your firm as less risky.

b. decrease, indicating that bond investors view your firm as less risky.

c. increase, indicating that bond investors view your firm as more willing to take risks.

d. decrease, indicating that bond investors view your firm as more willing to take risks.

8

The duration of any bond is the same as its maturity.

True

False

9

If the term structure of interest rates is flat, then the 9-year spot interest rate equals the 10-year spot interest rate.

True

False

10

U.S. Treasury bonds have almost zero default risk but are subject to inflation risk.

True

False

11.

Corporate bond yields are generally higher than government bond yields for bonds having the same coupon rate and maturity.

True

False

12.

A U.S. Treasury “strip” is a zero-coupon bond.

True

False

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