The nominal interest rate
A) does not include inflation.
B) includes inflation and the real rate of interest.
C) ignores the Fisher effect.
D) is the rate at which banks lend money to other banks.
Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the ________ premium is lower for government bonds.
A) interest rate risk
B) inflation
C) default
D) maturity
The Fisher effect can be expressed mathematically as
A) ( nominal rate)= (the real rate of interest) ( the inflation rate).
B) (1+ the nominal rate)= (1+the real rate of interest) (1 + the inflation rate).
C) the nominal rate)= the real rate of interest + the inflation rate).
D) the real rate of interest= the nominal rate - the inflation rate).
The yield on a corporate bond with a 20 year maturity would include
A) only the real rate of interest and expected inflation.
B) the risk-free rate multiplied by 1+ default rate.
C) the risk-free rate plus a default risk premium, a liquidity risk premium and a maturity risk premium.
D) the real rate of interest, the expected inflation rate and a default risk premium.
Pursuant to the Fisher Effect, the real interest rate is exactly equal to the nominal interest rate less the rate of inflation.
Answer: FALSE
When inflation rates go up, bond prices go up as well.
Answer: FALSE
As the time to maturity increases, the maturity premium increases.
Answer: TRUE
Maturity risk and liquidity risk are equivalent terms.
Answer: FALSE
Maturity risk and liquidity risk are equivalent terms.
Answer: FALSE
Long-term government bonds are not without maturity risk.
Answer: TRUE
