投资学第7版TestBank答案15.docx

投资学第7版TestBank答案15.docx

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投资学第7版TestBank答案15

MultipleChoiceQuestions

1.Thetermstructureofinterestratesis:

A）Therelationshipbetweentheratesofinterestonallsecurities.

B）Therelationshipbetweentheinterestrateonasecurityanditstimetomaturity.

C）Therelationshipbetweentheyieldonabondanditsdefaultrate.

D）Alloftheabove.

E）Noneoftheabove.

Answer:

BDifficulty:

Easy

Rationale:

Thetermstructureofinterestratesistherelationshipbetweentwovariables,yearsandyieldtomaturity（holdingallelseconstant）.

2.Theyieldcurveshowsatanypointintime:

A）Therelationshipbetweentheyieldonabondandthedurationofthebond.

B）Therelationshipbetweenthecouponrateonabondandtimetomaturityofthebond.

C）Therelationshipbetweenyieldonabondandthetimetomaturityonthebond.

D）Alloftheabove.

E）Noneoftheabove.

Answer:

CDifficulty:

Easy

3.Aninvertedyieldcurveimpliesthat:

A）Long-terminterestratesarelowerthanshort-terminterestrates.

B）Long-terminterestratesarehigherthanshort-terminterestrates.

C）Long-terminterestratesarethesameasshort-terminterestrates.

D）Intermediateterminterestratesarehigherthaneithershort-orlong-terminterestrates.

E）noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Theinverted,ordownwardsloping,yieldcurveisoneinwhichshort-termratesarehigherthanlong-termrates.Theinvertedyieldcurvehasbeenobservedfrequently,althoughnotasfrequentlyastheupwardsloping,ornormal,yieldcurve.

4.Anupwardslopingyieldcurveisa（n）_______yieldcurve.

A）normal.

B）humped.

C）inverted.

D）flat.

E）noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Theupwardslopingyieldcurveisreferredtoasthenormalyieldcurve,probablybecause,historically,theupwardslopingyieldcurveistheshapethathasbeenobservedmostfrequently.

5.Accordingtotheexpectationshypothesis,anormalyieldcurveimpliesthat

A）interestratesareexpectedtoremainstableinthefuture.

B）interestratesareexpectedtodeclineinthefuture.

C）interestratesareexpectedtoincreaseinthefuture.

D）interestratesareexpectedtodeclinefirst,thenincrease.

E）interestratesareexpectedtoincreasefirst,thendecrease.

Answer:

CDifficulty:

Easy

Rationale:

Anupwardslopingyieldcurveisbasedontheexpectationthatshort-terminterestrateswillincrease.

6.Whichofthefollowingisnotproposedasanexplanationforthetermstructureofinterestrates?

A）Theexpectationstheory.

B）Theliquiditypreferencetheory.

C）Themarketsegmentationtheory.

D）Modernportfoliotheory.

E）A,B,andC.

Answer:

DDifficulty:

Easy

Rationale:

A,B,andCarealltheoriesthathavebeenproposedtoexplainthetermstructure.

7.Theexpectationstheoryofthetermstructureofinterestratesstatesthat

A）forwardratesaredeterminedbyinvestors'expectationsoffutureinterestrates.

B）forwardratesexceedtheexpectedfutureinterestrates.

C）yieldsonlong-andshort-maturitybondsaredeterminedbythesupplyanddemandforthesecurities.

D）alloftheabove.

E）noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Theforwardrateequalsthemarketconsensusexpectationoffutureshortinterestrates.

8.Whichofthefollowingtheoriesstatethattheshapeoftheyieldcurveisessentiallydeterminedbythesupplyanddemandsforlong-andshort-maturitybonds?

A）Liquiditypreferencetheory.

B）Expectationstheory.

C）Marketsegmentationtheory.

D）Alloftheabove.

E）Noneoftheabove.

Answer:

CDifficulty:

Easy

Rationale:

Marketsegmentationtheorystatesthatthemarketsfordifferentmaturitiesareseparatemarkets,andthatinterestratesatthedifferentmaturitiesaredeterminedbytheintersectionoftherespectivesupplyanddemandcurves.

9.Accordingtothe"liquiditypreference"theoryofthetermstructureofinterestrates,theyieldcurveusuallyshouldbe:

A）inverted.

B）normal.

C）upwardsloping

D）AandB.

E）BandC.

Answer:

EDifficulty:

Easy

Rationale:

Accordingtotheliquiditypreferencetheory,investorswouldprefertobeliquidratherthanilliquid.Inordertoacceptamoreilliquidinvestment,investorsrequirealiquiditypremiumandthenormal,orupwardsloping,yieldcurveresults.

Usethefollowingtoanswerquestions10-13:

Supposethatallinvestorsexpectthatinterestratesforthe4yearswillbeasfollows:

10.Whatisthepriceof3-yearzerocouponbondwithaparvalueof$1,000?

A）$863.83

B）$816.58

C）$772.18

D）$765.55

E）noneoftheabove

Answer:

BDifficulty:

Moderate

Rationale:

$1,000/（1.05）（1.07）（1.09）=$816.58

11.Ifyouhavejustpurchaseda4-yearzerocouponbond,whatwouldbetheexpectedrateofreturnonyourinvestmentinthefirstyeariftheimpliedforwardratesstaythesame?

（Parvalueofthebond=$1,000）

A）5%

B）7%

C）9%

D）10%

E）noneoftheabove

Answer:

ADifficulty:

Moderate

Rationale:

Theforwardinterestrategivenforthefirstyearoftheinvestmentisgivenas5%（seetableabove）.

12.Whatisthepriceofa2-yearmaturitybondwitha10%couponratepaidannually?

（Parvalue=$1,000）

A）$1,092

B）$1,054

C）$1,000

D）$1,073

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

[（1.05）（1.07）]1/2-1=6%;FV=1000,n=2,PMT=100,i=6,PV=$1,073.34

13.Whatistheyieldtomaturityofa3-yearzerocouponbond?

A）7.00%

B）9.00%

C）6.99%

D）7.49%

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

[（1.05）（1.07）（1.09）]1/3-1=6.99.

Usethefollowingtoanswerquestions14-16:

Thefollowingisalistofpricesforzerocouponbondswithdifferentmaturitiesandparvalueof$1,000.

14.Whatis,accordingtotheexpectationstheory,theexpectedforwardrateinthethirdyear?

A）7.00%

B）7.33%

C）9.00%

D）11.19%

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

881.68/808.88-1=9%

15.Whatistheyieldtomaturityona3-yearzerocouponbond?

A）6.37%

B）9.00%

C）7.33%

D）10.00%

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

（1000/808.81）1/3-1=7.33%

16.Whatisthepriceofa4-yearmaturitybondwitha12%couponratepaidannually?

（Parvalue=$1,000）

A）$742.09

B）$1,222.09

C）$1,000.00

D）$1,141.92

E）noneoftheabove

Answer:

DDifficulty:

Difficult

Rationale:

（1000/742.09）1/4-1=7.74%;FV=1000,PMT=120,n=4,i=7.74,PV=$1,141.92

17.Themarketsegmentationtheoryofthetermstructureofinterestrates

A）theoreticallycanexplainallshapesofyieldcurves.

B）definitelyholdsinthe"realworld".

C）assumesthatmarketsfordifferentmaturitiesareseparatemarkets.

D）AandB.

E）AandC.

Answer:

EDifficulty:

Easy

Rationale:

Althoughthistheoryisquitetidytheoretically,bothinvestorsandborrowswilldepartfromtheir"preferredmaturityhabitats"ifyieldsonalternativematuritiesareattractiveenough.

18.Anupwardslopingyieldcurve

A）maybeanindicationthatinterestratesareexpectedtoincrease.

B）mayincorporatealiquiditypremium.

C）mayreflecttheconfoundingoftheliquiditypremiumwithinterestrateexpectations.

D）alloftheabove.

E）noneoftheabove.

Answer:

DDifficulty:

Easy

Rationale:

Oneoftheproblemsofthemostcommonlyusedexplanationoftermstructure,theexpectationshypothesis,isthatitisdifficulttoseparateouttheliquiditypremiumfrominterestrateexpectations.

19.The"break-even"interestrateforyearnthatequatesthereturnonann-periodzero-couponbondtothatofann-1-periodzero-couponbondrolledoverintoaone-yearbondinyearnisdefinedas

A）theforwardrate.

B）theshortrate.

C）theyieldtomaturity.

D）thediscountrate.

E）Noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Theforwardrateforyearn,fn,isthe"break-even"interestrateforyearnthatequatesthereturnonann-periodzero-couponbondtothatofann-1-periodzero-couponbondrolledoverintoaone-yearbondinyearn.

20.Whencomputingyieldtomaturity,theimplicitreinvestmentassumptionisthattheinterestpaymentsarereinvestedatthe:

A）Couponrate.

B）Currentyield.

C）Yieldtomaturityatthetimeoftheinvestment.

D）Prevailingyieldtomaturityatthetimeinterestpaymentsarereceived.

E）Theaverageyieldtomaturitythroughouttheinvestmentperiod.

Answer:

CDifficulty:

Moderate

Rationale:

Inordertoearntheyieldtomaturityquotedatthetimeoftheinvestment,couponsmustbereinvestedatthatrate.

21.Whichoneofthefollowingstatementsistrue?

A）Theexpectationshypothesisindicatesaflatyieldcurveifanticipatedfutureshort-termratesexceedthecurrentshort-termrate.

B）Thebasicconclusionoftheexpectationshypothesisisthatthelong-termrateisequaltotheanticipatedlong-termrate.

C）Theliquiditypreferencehypothesisindicatesthat,allotherthingsbeingequal,longermaturitieswillhaveloweryields.

D）Thesegmentationhypothesiscontendsthatborrowsandlendersareconstrainedtoparticularsegmentsoftheyieldcurve.

E）Noneoftheabove.

Answer:

DDifficulty:

Moderate

Rationale:

Aflatyieldcurveindicatesexpectationsofexistingrates.Expectationshypothesisstatesthattheforwardrateequalsthemarketconsensusofexpectationsoffutureshortinterestrates.ThereverseofCistrue.

22.Theconceptsofspotandforwardratesaremostcloselyassociatedwithwhichoneofthefollo