If general consensus is that interest rates are abnormally high and will soon fall, one wouldexpect to observe according to the expectations theoryan upward sloping yield curve.a downward sloping yield curve.a flat yield curve.a circular yield curve.

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Answered: O If general consensus is that interest…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which of the following best explains an upward sloping Treasury yield curve? A. Maturity risk is expected to decline in the future B. Long-term interest rates are more volatile than short-term rates C. Inflation risk premiums are higher for longer terms to maturity D. Default risk is higher for longer terms to maturity
Is it true that the the wider the risk premium, the lower the price of a expected future cash flow?
Suppose the real risk-free rate and inflation rate are expected to remain at their current levels throughout the foreseeable future. Consider all factors that affect the yield curve. Then identify which of the following shapes that the US Treasury yield curve can take. Check all that apply. Downward-sloping yield curve Inverted yield curve Upward-sloping yield curve Identify whether each of the following statements is true or false. StatementS True False If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping. (Assume MRP = 0.) All else equal, the yield on new bonds issued by a leveraged firm will be less than the yield on the new bonds issued by an unleveraged firm. The yield curve for a BBB-rated corporate bond is expected to be above the US Treasury bond yield curve. Yield curves of highly liquid assets will be lower than yield curves of relatively illiquid assets.
How might a sudden decrease in people's expectations of future real estate prices affect interest rates? O A. Interest rates would increase because real estate would have a relatively lower rate of return compared to bonds, which would cause the demand for bonds to increase. B. Interest rates would increase because real estate would have a relatively higher rate of return compared to bonds, which would cause the demand for bonds to decrease. OC. Interest rates would decrease because real estate would have a relatively higher rate of return compared to bonds, which would cause the demand for bonds to decrease. O D. Interest rates would decrease because real estate would have a relatively lower rate of return compared to bonds, which would cause the demand for bonds to increase.
Higher interest rates imply higher required rates of return, which is generally a negative for stock prices a. True b. False
When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns? Never When the set of returns includes only risk-free rates. When all of the rates of return in the set of returns are equal to each other.
Price risk is the risk that Select one: a. the bond principal will not be paid in full or on time. b. market prices increase due to market interest rate changes making bonds more expensive to purchase. c. the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. d. the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. e. coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturity
Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? Start a New Thread
The inverted yield curve predicts that bond prices will fall. Select one: True OR False
If the forward rate is expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then: a. the international Fisher effect (IFE) is refuted. b. the international Fisher effect (IFE) is supported. c. covered interest arbitrage is feasible. d. the average absolute error from forecasting would equal zero.
Please step by step solutions
Which of the following is true about Interest Rate? i. The Fisher Effect illustrates the positive relationship between inflation and nominal interest rates. ii. APR will always be greater than the EAR. iii. We can find the nominal interest rate by adding the default and maturity premiums to the sum of the real rate and inflation. O A. ii and i only O B. i and ii only OC. i only O D. i, ii, and iii

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O If general consensus is that interest rates are abnormally high and will soon fall, one would expect to observe according to the expectations theory an upward sloping yield curve. a downward sloping yield curve. a flat yield curve. a circular yield curve.