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Practice Questions #2 ID's:
Basis PointBetaConsolCoupon BondCoupon RateCurrent YieldDiscount YieldDiversificationExpected ReturnFisher EffectFixed-Payment LoanIndexed BondInterest-Rate RiskLiquidityLiquidity Preference FrameworkLoanable FundsLoanable Funds FrameworkNominal Interest RateOpportunity CostPar ValuePresent Discounted ValuePresent ValueRate of Capital GainRate of ReturnReal Interest RateReinvestment RiskSystematic RiskWealthWealth Elasticity of DemandYield to MaturityZero Coupon Bond
True/False/Uncertain Statements: 1. An increase in wealth increases the demand for bonds.2. An increase in the expected interest rate increases the demand for bonds.3. An increase in expected inflation increases the demand for bonds.4. An increase in the riskiness of bonds relative to other assets increases the demand for bonds.5. An increase in the liquidity of bonds relative to other assets increases the demand for bonds.6. A decrease in the profitability of other investments decreases the supply of bonds.7. A decrease in the government budget deficit decreases the supply of bonds.8. An increase in income decreases the interest rate.9. An increase in the price level decreases the interest rate.10. An increase in money supply decreases the interest rate.11. The effect of an increase in the rate of money growth will have a definite effect in the interest rate in the long run.12. If the real interest rate increases people have incentive to increase their expenditures.13. If the real interest rate increases people have incentive to increase their holdings of bonds.14. Volatility for long-term bonds is higher than that for short-term bonds.15. The return of a bond is equal to the interest rate on that bond.16. Current yield and yield to maturity are fancy names for the same thing, i.e. the interest rate.17. The return on a bond will not necessarily equal the interest rate on that bond.18. Bonds with a maturity that is as short as the holding period have no interest-rate risk.19. Discount yield understates yield to maturity, and this understatement is increasing in maturity.20. Diversification is always beneficial to the risk-averse investor. Other Questions:
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