Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Question
To use the concept of duration to analyze the effect of changes in interest rates on the market value of an asset, a bank manager would multiplyA)the negative of the duration of the asset by the change in the interest rate, Δi.
B)the negative of the duration of the asset by Δi /(1 + i).
C)the duration of the asset by the change in the interest rate, Δi.
D)the duration of the asset by Δi /(1 + i).
Answer
This answer is hidden. It contains 1 characters.
Related questions
Q:
If the expected path of one-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, the pure expectations theory predicts that the bond with the highest interest rate today is the one with a maturity ofA)one year.B)two years.C)three years.D)four years.E)five years.
Q:
According to the expectations theory of the term structure,A)yield curves should be equally likely to slope downward as to slope upward.B)when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future.C)when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future.D)all of the above.E)only A and B of the above.
Q:
According to the expectations theory of the term structure,A)the interest rate on long-term bonds will exceed the average of expected future short-term interest rates.B)interest rates on bonds of different maturities move together over time.C)buyers of bonds prefer short-term to long-term bonds.D)all of the above.E)only A and B of the above.
Q:
(I) If a corporate bond becomes less liquid, the interest rate on the bond will fall. (II) If a corporate bond becomes less liquid, the interest rate on Treasury bonds will fall.A)(I) is true, (II) false.B)(I) is false, (II) true.C)Both are true.D)Both are false.
Q:
When the corporate bond market becomes less liquid, other things equal, the demand curve for corporate bonds shifts to the _________ and the demand curve for Treasury bonds shifts to the _________.A)right; rightB)right; leftC)left; leftD)left; right.
Q:
(I) The risk premium widens as the default risk on corporate bonds increases. (II) The risk premium widens as corporate bonds become less liquid.A)(I) is true, (II) false.B)(I) is false, (II) true.C)Both are true.D)Both are false.
Q:
Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, theA)income effect.B)liquidity effect.C)price level effect.D)expected inflation effect.
Q:
Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is theA)liquidity effect.B)income effect.C)price level effect.D)expected inflation effect.
Q:
Holding everything else constant, a decrease in the money supply causesA)interest rates to decline initially.B)interest rates to increase initially.C)bond prices to increase initially.D)both A and C of the above.E)both B and C of the above.
Q:
A rise in the price level causes the demand for money to _________ and the demand curve to shift to the _________A)decrease; right.B)decrease; left.C)increase; right.D)increase; left.
Q:
A lower level of income causes the demand for money to _________ and the interest rate to _________A)decrease; decrease.B)decrease; increase.C)increase; decrease.D)increase; increase.
Q:
A higher level of income causes the demand for money to _________ and the interest rate to _________A)decrease; decrease.B)decrease; increase.C)increase; decrease.D)increase; increase.
Q:
When comparing the loanable funds and liquidity preference frameworks of interest rate determination, which of the following is true?A)The liquidity preference framework is easier to use when analyzing the effects of changes in expected inflation.B)The loanable funds framework provides a simpler analysis of the effects of changes in income, the price level, and the supply of money.C)In most instances, the two approaches to interest rate determination yield the same predictions.D)All of the above are true.E)Only A and B of the above are true.
Q:
Figure 4.2In Figure 4.2, one possible explanation for a decrease in the interest rate from i2to i1 isA)an increase in government budget deficits.B)an increase in expected inflation.C)a decrease in economic growth.D)a decrease in the riskiness of bonds relative to other investments.
Q:
A decrease in the expected rate of inflation causes the demand for bonds to _________ and the supply of bonds to _________.A)fall; fallB)fall; riseC)rise; fallD)rise; rise
Q:
The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates _________ as the expected rate of inflation _________.A)rise; increasesB)rise; stabilizesC)rise; decreasesD)fall; increasesE)fall; stabilizes
Q:
Factors that can cause the supply curve for bonds to shift to the left includeA)an expansion in overall economic activity.B)a decrease in expected inflation.C)an increase in government deficits.D)only A and C of the above.
Q:
When the inflation rate is expected to increase, the real cost of borrowing declines at any given interest rate; as a result, the _________ bonds increases and the _________ curve shifts to the right.A)demand for; demandB)demand for; supplyC)supply of; demandD)supply of; supply
Q:
When the federal government's budget deficit decreases, the _________ curve for bonds shifts to the _________.A)demand; rightB)demand; leftC)supply; leftD)supply; right
Q:
When stock prices become less volatile, the demand curve for bonds shifts to the _________ and the interest rate _________.A)right; risesB)right; fallsC)left; fallsD)left; rises
Q:
Lower expected interest rates in the future _________ the demand for long-term bonds and shift the demand curve to the _________A)increase; left.B)increase; right.C)decrease; left.D)decrease; right.
Q:
Higher expected interest rates in the future _________ the demand for long-term bonds and shift the demand curve to the _________.A)increase; leftB)increase; rightC)decrease; leftD)decrease; right
Q:
For a holding period of one year, the expected return on a consol is _________ the higher is the price of the consol today, and _________ the higher is the price of the consol next year.A)higher; higherB)higher; lowerC)lower; higherD)lower; lower
Q:
The higher the standard deviation of returns on an asset, the _________ is the asset's _________.A)greater; riskB)smaller; riskC)greater; expected returnD)smaller; expected return
Q:
The demand for an asset rises if _________ falls.A)risk relative to other assetsB)expected return relative to other assetsC)liquidity relative to other assetsD)wealth
Q:
When the demand for bonds _________ or the supply of bonds _________, bond prices rise.A)increases; decreasesB)decreases; increasesC)decreases; decreasesD)increases; increases
Q:
The current yield goes up as the price of a bond falls.
Q:
The real interest rate is equal to the nominal rate minus inflation.
Q:
The change in the bond's price relative to the initial purchase price isA)the current yield.B)coupon payment.C)yield to maturity.D)rate of capital gain.
Q:
A discount bondA)is also called a coupon bond.B)is also called a zero-coupon bond.C)is also called a fixed-payment bond.D)is also called a corporate bond.