Question

10) Interest rates typically display a A) countercyclical pattern B) cyclically neutral C) procyclical D) random 11). Which if the following would you prefer to be buying based on yield to maturity (assume n = 25)? A) A $10,000 par value security with a 9% coupon rate selling for $9,000 B) A $15,000 par value security with a 7% coupon rate selling for $15,700 C) A $20,000 par value security with a 9% coupon rate selling for $20,500 D) A $25,000 par value security with a 7% coupon rate selling for $25,500. 12) A student receives a five-year loan to pay for a $2,000 used car. The lender and the student agree to an 8% interest rate on a fixed-rate loan. Expected inflation was estimated to equal 2.5%, but unexpectedly increases to 3%. Which of the following is true? A) The student is made worse off because her real cost of borrowing is higher. B) The real interest rate increased C) The lender is made worst off because his real return on the car loan is lower D) Both the student and the lender are worse off in the loan contract 13) If fluctuations in the stock market prices become less volatile, then, other things equal, the demand for long- and the yield on long-term bonds should B) increases; decreases D) decreases; increases term A) increases; increases C) decreases; decreases

Answer 1

1nterest vofes pMayclicel 6e cayse rise Mhen booming e cono m7 fa1l and Nhen Contracks economt COYrect Option C 47M Pytt Of bond in Scenario A 900 (P/A, r' 29f 1 0cpIFAr', 25 9000 9 CPIA, , 25) + 1OO (P/F, f., 2 ) in scenario B bord Lrt 4TN Of 1S000 0PI, rl., 25) 7 ScenartoC bond f t 800 CP/A, Y, 25)t a o00 CP/F,T, 23) 20g00 SCen ato D bor 47M 7ン be chosen. Option A

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