(Answers- White version) - part I Answer the following...

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part I: Answer the following Multiple choice questions 1. Which of the following $1,000 face value securities has the highest yield to maturity? (a) A 5 percent coupon bond selling for $1,000 (b) A 10 percent coupon bond selling for $1,000 (c) A 12 percent coupon bond selling for $1,000 (d) A 12 percent coupon bond selling for $1,100 Answer: C 2. The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later is 3. Which of the following are true concerning the distinction between interest rates and return?
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4. If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? 5. According to the pure expectations theory of the term structure, (a) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. (b) when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future. (c) investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward. (d) all of the above. (e) only (a) and (b) of the above. Answer: A 6. When the expected inflation rate increases, the demand for bonds _________, the supply of bonds _________, and the interest rate _________.
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7. Which theory of the term structure proposes that bonds of different maturities are not substitutes for one another? 8. Since yield curves are usually upward sloping, the _________ indicates that, on average, people tend to prefer holding short-term bonds to long-term bonds.
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