Which of the following statements about interest rate

This preview shows page 9 - 10 out of 10 pages.

25. Which of the following statements about interest rate risk are true? All else equal: I. The longer the maturity, the greater the interest rate risk. II. The higher the coupon rate, the greater the interest rate risk. III. The higher the initial yield, the greater the interest rate risk. a. I only b. I and II only c. II and III only d. I and III only e. I, II and III 26. The right of the bond issuer to purchase a bond from the holder at a predetermined price prior to maturity is referred to as: 27. The portion of a bond’s yield that compensates investors for the possibility that the bond’s interest or principal might not be paid is called the: 28. A $1,000 face value corporate bond with 15 years to maturity pays a 9.125% semiannual coupon. The YTM is 8.00%. Calculate the price of the bond. 9
Image of page 9

Subscribe to view the full document.

29. A payday loan operation is a business that offers to “cash” your paycheck two weeks early for $50 fee. The maximum loan size is $500. So if you borrow $500 for two weeks, you receive $500 now and pay $550 in two weeks. Calculate BOTH the APR and the EAR for this $500, two-week loan with the $50 interest payment. Assume there are exactly 26 two- week periods per year. (Note: This is really how pay-day loan operations work!) a. APR = 2.50%; EAR = 2.53% b. APR = 6.50%; EAR = 6.31% c. APR = 6.50%; EAR = 6.61% d. APR = 65.00%; EAR = 50.56% e. APR = 260.00%; EAR = 1091.82% 30. Suppose the required real rate of return is on a T-Bill is 5.50% and the expected inflation rate is 2.60%. What would be that exact nominal rate paid on a T-Bill? 10
Image of page 10

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern