Short-term interest rates: fluctuate widely, depending on their terms. tend to move together. always move in the same direction as long-term interest rates. are always above long-term interest rates.
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- How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)If long-term interest rates are 8% and short-term interest rates are 3%, the market expects that: A) short-term rates will remain the same in the future. B) there is no relationship between long-term and short-term rates. C) short-term rates will rise in the future. D) short-term rates will fall in the future.A bond is a financial asset where the issuer is obliged to pay a bond holder interest at specified intervals (the coupon) and/or to repay the principal at a specified future date (the maturity date). pays a rate of return (interest) that fluctuates with market conditions. receives regular payments from the bond holder determined at a market rate at the time of payment. pays a higher rate of return (yield) as the price of the bond rises.
- The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $250, what will be the interest rate yield to a new buyer of the bond?A bond provides a fixed return on the buyer’s investment. True or falseThe net present value of $1,000 received one year from now will increase with the interest rate. exceed $1,000 as long as the interest rate is positive. exceed the net present value of $1,000 to be received two years from now. equal $1,100 if the current interest (discount) rate is 10 percent.
- An investor purchasing a British consol is entitled to receive annual payments from the British government forever. What is the price of a consol that pays $250 annually if the next payment occurs one year from today? The market interest rate is 3.6 percent. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Present value $A bond's yield is a periodic fixed payment made to a bondholder expressed as a percent of its face value. the current annual return to a bond. the date when the face value must be paid to the bondholder. the amount that must be repaid to the bondholder upon its maturity.Most businesses would probably not undertake investment projects for which the expected rate of profit were Multiple Choice greater than the going interest rate. one percent more than the going interest rate. equal to or less than the going interest rate. less than the going interest rate.
- Market interest rates are established by the banks or any financial institutions. True or false?A mortgage that requires a down payment of 5% of the purchase price of the house is called a good deal. an "upside-down" loan a subprime loan a prime loanSuppose Neha is a sports fan and buys only baseball caps. Neha deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $10.00. Fill in the chart: 0% 5% 8% Number of Caps Neha Can Purchase after One Year Choices: 291, 305, 315, 582 Choices: 291, 300, 305, 582 Choices: 291, 305, 315, 582 Real Interest Rate When the rate of inflation is less than the interest rate on Neha's deposit, the purchasing power of her deposit __________ (options: falls, rises, remains the same) over the course of the year.