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Finance Quiz 4 - Interest rates

Quiz by Jamal Haider Naqvi

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5 questions
Show answers
  • Q1

    If investors expect therate of inflation to increase sharply in the future, then we should not besurprised to see an upward-sloping yield curve

    true
    false
    True or False
    30s
  • Q2

      The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3)risk, and (4) the skill level of the economy's labor force.

    false
    true
    True or False
    30s
  • Q3

    Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 2.25%, and a maturity risk premium of 0.10% per year to maturity applies, i.e., MRP =0.10%(t), where t is the years to maturity. What rate of return would you expect on a 1-year Treasury security?

    5.35%

    5.25%

    5.08%

    60s
  • Q4

    5-year Treasury bonds yield 5.5%.  The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%. There is no liquidity premium on these bonds.  What is the real risk-free rate, r*?

    3.87%

    2.88%

    3.2%

    2.59%

    60s
  • Q5

    Because the maturity risk premium is normally positive, the yield curve is normally upward sloping

    true
    false
    True or False
    60s

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