FINC 3210 CH 6 Study Guide Test.

FINC 3210 CH 6 Study Guide Test. What is a corporate bond's yield to maturity (YTM)? - CORRECT ANSWER YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is the prevailing market interest rate for bonds with similar features. The relationship between nominal rates, real rates and inflation is called _____ - CORRECT ANSWER The Fisher Effect Equity represents a _____ interest of the firm while debt is ____ an ownership interest in the firm. - CORRECT ANSWER ownership, not What does historical data suggest about the nature of short-term and long-term interest rates - CORRECT ANSWER Sometimes short-term rates are higher and sometimes long-term rates are higher What is a real rate of return? - CORRECT ANSWER It is a rate of return that has been adjusted to remove inflation. Its is a percentage change in buying power. The US Government borrows money by issuing: - CORRECT ANSWER Treasury bonds. Treasury notes As an investor in the bond market, why should you be concerned about changes in interest rates? - CORRECT ANSWER Changes in interest rates cause changes in bond rates. A corporate bond's yield to maturity - CORRECT ANSWER is usually not the same as a bond's coupon rate. Changes over time. Which of the following are true of bonds? - CORRECT ANSWER They are issued by both corporations and governments and they are interest-only loans What is the coupon rate of a bond that has a par value of $1,000, a market value of $1,100 and a coupon interest payment of $100 per yeat - CORRECT ANSWER 10%