BUSI 420 Read & Interact Jordan, Miller Jr., & Dolvin Chapter 9 solutions complete answers

BUSI 420 Read & Interact Jordan, Miller Jr., & Dolvin Chapter 9 solutions complete answers

 

The Federal Reserve sets the ______ rate, which is the interest rate at which the Fed lends to commercial banks for overnight reserve loans.

 

True or false: Over the 2009 - 2017 period, interest rates were much higher than their historical average.

 

The interest rates on bonds are generally ________ than the rates on bills.

 

The        rate is the most commonly quoted interest rate and is often referred to as the bellwether rate.

 

True or false: Money market securities do not pay coupon interest.

 

If we are given an interest rate quoted on a bank discount basis for a particular money market instrument, then we can calculate the price of that instrument using the discount yield, the days to maturity divided by 360, and the _____.

 

A(n)        (bid/ask) discount is used by dealers to state what price they will accept to sell a T-bill.

 

Bills are         (short/long) term, and bonds are        (short/long) term.

 

True or false: Bond equivalent yields do not need to be adjusted for leap years.

 

The ______ funds rate is the interest rate that banks charge each other for overnight loans of $1 million or more.

 

The asked yield in a T-bill quote is a __________.

 

Money market securities are often referred to as pure        securities. (Enter one word per blank.)

 

The       (APR/EAR) understates the true interest rate, which is usually called the       (APR/EAR).

 

True or false: Bank discount yields are based on a 365-day calendar year.

 

A(n)        (bid/ask) discount is used by dealers to state what they are willing to pay for a T-bill.

 

The Treasury yield curve is a plot of Treasury yields against       .

 

To calculate a T-bill ask price using the bond equivalent yield, you must multiply the bond equivalent yield by _____ and then add one in the denominator of the equation.

 

True or false: The yield curve is based on pure discount instruments, whereas the term structure is based on coupon bonds.

 

The bond equivalent yield is an ______.

 

True or false: Treasury STRIPS are pure discount instruments.

 

The equation for calculating a STRIPS price is:

 

An inverted yield curve is generally associated with potential ____________ conditions.

 

The relationship between nominal and real interest rates in the        hypothesis, which basically asserts that short-term interest rates reflect current inflation.

 

Bank discount yields are based on a        (360/365) day year, while bond equivalent yields are based on a        (360/365) day year.

 

TIPS pay a fixed coupon rate on their current principal and adjust their principal _____ according to the most recent inflation rate.

 

The difference between the yield curve and the term structure is that the yield curve is based on        bonds, whereas the term structure is based on pure discount instruments.

 

According to the expectations theory, an upward sloping yield curve predicts a(n) ________ in interest rates.

 

A 5-year note with semiannual coupons could be stripped into ____ separate securities.

 

True or false: The calculation of the yield on a STRIPS is a standard time value of money calculation.

 

True or false: If expected future inflation is higher than current inflation, then we are likely to see an upward-sloping term structure where long-term interest rates are higher than short-term interest rates.

 

If the nominal rate is 6% and the inflation rate is 2%, then the real rate is approximately _____.

 

True or false: The maturity preference theory suggests that debt markets are segmented by maturity, which results in interest rates for each maturity being determined within each segment.

 

Securities issued by the Treasury that protect against inflation are _____.

 

True or false: Contrary to the expectations hypothesis, interest rates have not always risen.

 

According to the        theory of the term structure of interest rates, the shape of a yield curve expresses financial market expectations regarding future interest rates.

 

Modern term structure theory states that, all else equal, investors do prefer _______.

 

Taken together, the expectations theory and the Fisher hypothesis assert that an _____ term structure tells us that the market expects that nominal interest rates and inflation are likely to be higher in the future.

 

The idea that interest rates corresponding to each maturity are determined separately by supply and demand conditions in each market segment is called _____.

 

If we examine the behavior of the term structure in the last two decades, we find that the term structure is almost always _____.

 

Which of the following is not one of the premiums typically incorporated into a bond's interest rate?

 

The modern view of the term structure suggests that nominal interest rates on default-free securities can be stated as:

 

The equation for calculating nominal interest rates for individual securities is as follows: