Unformatted text preview: uivalent yield
B) The EAR
C) The TOE
D) The EYE
E) The rate per compounding period
Answer: A Page: 3536 Level: Difficult
31. An annuity and an annuity due with the same number of payments have the same future value if r =
10%. Which one has the higher payment?
A) They both must have the same payment since the future values are the same
B) There is no way to tell which has the higher payment
C) An annuity and an annuity due cannot have the same future value
D) The annuity has the higher payment
12 Saunders, Financial Markets and Institutions, 2/e Chapter 1 Introduction E) The annuity due has the higher payment
Answer: D Page: 3234 Level: Difficult 32. You go to the Wall Street Journal and notice that yields on almost all corporate and Treasury bonds have
decreased. The yield decreases may perhaps be explained by which one of the following:
A) A decrease in U.S. inflationary expectations
B) Newly expected decline in the value of the dollar
C) An increase in current and expected future returns of real corporate investments
D) Decreased Japanese purchases of U.S. Treasury Bills/Bonds
E) Increases in the U.S. Government budget deficit
Answer: A Page: 4748 Level: Medium Use the following to answer questions 3334:
YIELD CURVE FOR ZERO COUPON BONDS RATED AA
Maturity YTM
Maturity YTM
Maturity YTM
1 year
8.00%
7 year
9.15%
13 year
10.45%
2 year
8.11%
8 year
9.25%
14 year
10.65%
3 year
8.20%
9 year
9.35%
15 year
10.75%
4 year
8.50%
10 year
9.47%
16 year
10.95%
5 year
8.75%
11 year
9.52%
17 year
11.00%
6 year
8.85%
12 year
9.77%
18 year
11.25%
There are no liquidity premiums. 33. To the nearest basis point what is the expected interest rate on a one year AA zero coupon bond
purchased eight years from today?
A) 9.47%
B) 10.15%
C) 9.41%
D) 10.56%
E) 0.12%
Answer: B Page: 5859 Level: Difficult
Response: (1.09359 / 1.09258) 1
34. You just bought a 17 year maturity Xerox corporate bond rated AA with a 0% coupon. Find the
expected rate of return (to the nearest basis point) on the bond if you expect to sell the bond in 6 years
(watch out for rounding error).
A) 11.00%
B) 8.85%
C) 12.39%
D) 9.80%
E) 9.92%
Saunders, Financial Markets and Institutions, 2/e 13 Answer: B Page: 5859 Level: Difficult 35. According to the liquidity premium theory of interest rates
A) Long term spot rates are higher than the average of current and expected future short term rates.
B) Investors prefer certain maturities and will not normally switch out of those maturities.
C) Investors are indifferent between different maturities if the long term spot rates are equal to the
average of current and expected future short term rates.
D) The term structure must always be upward sloping.
E) Long term spot rates are totally unrelated to expectations of future short term rates.
Answer: A Page: 56 Level: Difficult 36. An increase in income tax rates
A) Will decrease the savings rate
B) Will decrease the supply of loanable funds
C) Will increase interest rates
D) All of the above
Answer: D Page...
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This note was uploaded on 09/23/2013 for the course FIN 308 taught by Professor Spivey during the Fall '08 term at Clemson.
 Fall '08
 Spivey
 Financial Markets

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