Chapter 15 The Term Structure of Interest Rates Answer Key
Multiple Choice Questions
1.
The term structure of interest rates is
2.
Treasury STRIPS are
3.
The value of a Treasury bond should
4.
If the value of a Treasury bond was higher than the value of the sum of its parts
(STRIPPED cash flows) you could
5.
If the value of a Treasury bond was lower than the value of the sum of its parts
(STRIPPED cash flows) you could
Topic: Term Structure of Interest Rates
6.
Topic: Term Structure of Interest Rates
If the value of a Treasury bond was lower than the value of the sum of its parts
(STRIPPED cash flows)
7.
If the value of a Treasury bond was higher than the value of the sum of its parts
(STRIPPED cash flows)
8.
Bond stripping and bond reconstitution offer opportunities for ______, which can occur if
the _________ is violated.
9.
______ can occur if _____.
10.
The yield curve shows at any point in tim
11.
An inverted yield curve implies that
12.
An upward sloping yield curve is a(
n
) _______ yield curve.
13.
According to the expectations hypothesis, an upward sloping yield curve implies that
Difficulty: Basic
Topic: Yield curve
14.
Which of the following is not proposed as an explanation for the term structure of interest
rates?
15.
The expectations theory of the term structure of interest rates states that
16.
Suppose that all investors expect that interest rates for the 4 years will be as follows:
What is the price of 3-year zero-coupon bond with a par value of $1,000?
17.
Suppose that all investors expect that interest rates for the 4 years will be as follows:
If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of
return on your investment in the first year if the implied forward rates stay the same? (Par
value of the bond = $1,000)
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18.
Suppose that all investors expect that interest rates for the 4 years will be as follows:
What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par
value = $1,000)
19.
Suppose that all investors expect that interest rates for the 4 years will be as follows:
What is the yield to maturity of a 3-year zero-coupon bond?
20.
The following is a list of prices for zero-coupon bonds with different maturities and par
value of $1,000.
What is, according to the expectations theory, the expected forward rate in the third year?
21.
The following is a list of prices for zero-coupon bonds with different maturities and par
value of $1,000.
What is the yield to maturity on a 3-year zero-coupon bond?
22.
The following is a list of prices for zero-coupon bonds with different maturities and par
value of $1,000.
What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par
value = $1,000.)
23.
An upward sloping yield curve
24.
The “break-even” interest rate for year
n
that equates the return on an
n
-period zero-
coupon bond to that of an
n
–
1 – period zero-coupon bond rolled over into a one-year
bond in year n is defined as
25.
When computing yield to maturity, the implicit reinvestment assumption is that the
interest payments are reinvested at the
26.
Given the bond described above, if interest were paid semi-annually (rather than
annually), and the bond continued to be priced at $850, the resulting effective annual yield
to maturity would be
27.
Forward rates ____________ future short rates because ____________.
28.
The pure yield curve can be estimated