ch 6 interest rates

The premium charged which reflects that the issuer may not pay principal or interest at the promised time is the

default risk premium (DRP)

Which of the following would cause an individual’s expected rate of return on an investment to increase 

a predicted high rate of inflation 

Which of the following statements is CORRECT about a yield curve

a downward sloping yield curve is referred to as abnormal or inverted

Which of the following is NOT a fundamental factor affecting the cost of money

climate change

Kalmia is looking at Treasury yield curves to make some investment decisions. She is trying to decide if she should make a long or short term investment and is noticing that the yield curves she is looking all have a downward slope. What should the bonds signify to Kalmia that will help her in making her decision

the inflation rate is likely to decline and may signal an economic downturn

Which of the following is a possible advantage to a company choosing a loan with a long term rate of 4.2% over a short term loan with a rate of 3.5%

with a long term loan, the interest cost would remain constant over the loan life

The nominal, risk free interest rate( rrf) can be determined by

adding the inflation premium (IP) to the r-star (r*) rate

Which of the following formulas would be used to calculate the yield of a Treasury bond

rt*+IPt+MRPt

Which of the following is true about future interest rates

interest rate will continue to fluctuate