Why bond yields and bond prices are inversely related

Assignment Help Finance Basics

Reference no: EM131888541

Questions -

QUESTION 1 - The term "financial system" refers to the collection of markets, individuals and institutions, laws, regulations and techniques through which securities are traded and interest rates determined.

True

False

QUESTION 2 - The primary task of a financial system is to move scarce loanable funds from those who save to those who borrow to buy goods and services and to make investments in new equipment and facilities so that the global economy can grow and increase the standard of living enjoyed by its citizens.

True

False

QUESTION 3 - The largest borrower in the U.S. money market is Citibank, the nation's largest commercial bank.

True

False

QUESTION 4 - It is necessary for a monetary unit to have an intrinsic value as a commodity to be accepted as a medium of exchange.

True

False

QUESTION 5 - The household sector is typically a net lender (or supplier) of funds in the financial marketplace.

True

False

QUESTION 6 - Interest rates on securities issued by borrowers in the economy other than the government must reflect the different types and degrees of risk that investors in those securities must assume.

True

False

QUESTION 7 - The risk-free interest rate represents the return you can expect for taking no risk.

True

False

QUESTION 8 - The dividend yield is the only return that a shareholder can expect from share ownership.

True

False

QUESTION 9 - One of the most important contributions of the financial markets is to make possible the exchange of current income/consumption for greater consumption in the future.

True

False

QUESTION 10 - For households, savings are equal to personal income minus current consumption and minus taxes.

True

False

QUESTION 11 - What is meant by the term "red herring?"

A Red Herring is an opinion on a stock written by an analyst who does not usually cover the stock in question

A Red Herring is a preliminary prospectus that can be sent to a prospective buyer of an IPO.

A Red Herring is a red silk neck tie that has a herring bone pattern woven into it.

A Red Herring is a term for a sales pitch that brokers can make to their clients.

None of the above

QUESTION 12 - Net wealth (also called net worth) for an economic unit equals:

Total assets plus equity capital

Total assets less real (non-financial) assets

Total assets minus total liabilities

Total savings plus holding of financial assets

None of the above

QUESTION 13 - Which one of the following is not a financial asset?

A single family home

A Common stock

A Corporate Bond

A Municipal Bond

A T-Bill

QUESTION 14 - The government sector in the economy usually is a:

Balanced-budget sector

Surplus-budget sector

Deficit-budget sector

Financially neutral sector

None of the above

QUESTION 15 - The revenue stream associated with a bond normally consists of

Periodic identical coupon payments

Par value every six months

Par value at maturity

A and C are correct

None of the above

QUESTION 16 - How does the interest rate measure known as the holding-period yield differ from the yield to maturity?

QUESTION 17 - What is an adjustable rate mortgage (ARM)? How does one work? There is a type of ARM called an Option ARM. What are they and how do they work?

QUESTION 18 - A municipal bond you are considering as an investment currently pays a yield of 6.75%.

a) Calculate the tax equivalent yield if your marginal tax rate is 28%.

b) Calculate the tax equivalent yield if your marginal tax rate is 21%

Show your work.

QUESTION 19 - Explain why bond yields and bond prices are inversely related? What does this relationship tell you about the market value of a bond on a day when interest rates rise. Would you want to be managing a portfolio of bonds on that day? Why or why not?

QUESTION 20 - What is inflation? Why is it important?

Reference no: EM131888541

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