Annual rate of capital gains

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1. The default-free zero-coupon bond Y is quoted below par. If you expect the interest rate to increase in the next few months, you expect the annual rate of capital gains (Pt+1-Pt)/Pt to be...

a) positive 

b) negative

c) zero 

d) not enough info to answer 

2. According to the theory developed by Akerlof, if lenders propose a higher interest rate to borrowers, it necessarily leads to...

a) an increase in the quality of loans

b) an increase in bank's profits

c) an increase in the borrower's credit quality

d) none of the above

Reference no: EM133062779

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