Expectations hypothesis of term structure of interest rates

Assignment Help Financial Management

Reference no: EM131911068

1. A coupon bond pays semi-annual interest is reported as having a price quotation of 117% of its $1,000 par value. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be __________. (Assume 1 month = 30 days for this problem)

A) $1,140

B) $1,170

C) $1,180

D) $1,200

2. You purchased a 5-year annual interest coupon bond one year ago. Its coupon interest rate was 6% and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond immediately after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately_____.

A) 5.0%

B) 5.5%

C) 7.6%

D) 9.0%

3. We observe that the slope of yield curve is negative (downward sloping). According to the pure expectations hypothesis of the term structure of interest rates, this is an indication that __________.

A) short term interest rate is expected to rise in the future

B) long term interest rate is expected to rise in the future

C) short term interest rate is expected to fall in the future

D) long term interest rate is expected to fall in the future

Reference no: EM131911068

Questions Cloud

Energy stored in the solenoid : An MRI scanner uses a large solenoid with inductance 0.53 H, carrying 2.4 kA of current.

What is estimate of the stock current price : The company's stock has a beta of 1, the risk-free rate is 6.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?

Explain the assumptions that must be met by the investigator : Discuss when it is appropriate to use the test. Next, discuss the assumptions that must be met by the investigator to run the test.

What is the expected return on the portfolio : You own a portfolio that has $2,350 invested in Stock A and $4,000 invested in Stock B. , what is the expected return on the portfolio?

Expectations hypothesis of term structure of interest rates : According to the pure expectations hypothesis of the term structure of interest rates, this is an indication that __________.

Increase in temperature : How much heat is exchanged when 100g of solution with a specific heat of 3.93 Jg-1K-1 has an increase in temperature of 5.2oC?

Reaction of calcium hydroxide with acetic acid : Write a chemical equation that describes the heat of neutralization for the reaction of calcium hydroxide with acetic acid.

What is meant by the term float-what is the role of floats : Why does Warren Buffett invest in the insurance industry? What is meant by the term "float"? What is the role of "floats"?

What was the molar mass of the gas : The volume of the gas was 265 mL at a pressure of 753 torr and a temperature of 27 °C. The mass of the gas was 0.472g. What was the molar mass of the gas?

User Account

All Pages