1. Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond = 7.72%AAA...
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1. Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond = 7.72%AAA = 8.72% A = 9.64% BBB = 10.18%. The differences in these rates were probably caused primarily by:
A.
Tax effects.
B.
Inflation differences.
C.
Default and liquidity risk differences.
D.
Maturity risk differences.
QUESTION 2
1. The Federal Reserve tends to take actions to ______ interest rates when the economy is very strong and to ______ rates when the economy is weak.
A.
Increase; increase.
B.
Increase; decrease.
C.
Decrease; decrease.
D.
Decrease; increase.
QUESTION 3
1. he "yield curve" shows the relationship between______
A.
Long-term debt values and their correlations to equity prices.
B.
Bonds' maturities and their yields
C.
The price of options (call and put) that will be expired after one year or more.
D.
Equity prices and their risk.
QUESTION 4
1. The 10-year treasury bond has_____ price sensitively and_____ reinvestment risk than the 25-year treasury bond.
A.
Higher; higher.
B.
Lower; lower.
C.
Higher; lower.
D.
Lower; higher.
QUESTION 5
1. What is the value of a 10-year bond outstanding with 11% annual required rate and 11% annual payment?
A.
$760.06
B.
$1000
C.
$852.80
D.
$1097.19
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