#1
According to the Fisher effect, what happens to nominal interest rates when inflation rates increase?
Nominal interest rates decrease
Nominal interest rates remain the same
Nominal interest rates increase
Nominal interest rates fluctuate
#2
What is the formula for calculating the present value of a bond's future cash flows?
PV = C / (1 + r)^n
PV = C / r
PV = C / (1 + r)
PV = C * (1 + r)^n
#3
Which of the following factors affects bond prices inversely?
Interest rates
Coupon rate
Maturity date
Credit rating
#4
What does a flat yield curve typically indicate about the market's interest rate expectations?
Expectations of rising interest rates
Expectations of falling interest rates
Stable interest rate expectations
Uncertain interest rate expectations
#5
What does the term 'bond duration' measure?
The time until the bond's maturity date
The time it takes for a bond to double in value
The sensitivity of a bond's price to changes in interest rates
The periodicity of bond coupon payments
#6
Which of the following interest rate theories suggests that long-term interest rates are determined by the average of short-term interest rates expected over the term of a bond?
Expectations theory
Liquidity preference theory
Market segmentation theory
Fisher effect
#7
What is the primary factor affecting bond prices according to the liquidity preference theory?
Expected inflation
Market demand and supply for bonds
Expected changes in interest rates
Investor expectations
#8
Which theory suggests that long-term interest rates are determined by the interaction of supply and demand for bonds in each maturity segment of the bond market?
Expectations theory
Liquidity preference theory
Market segmentation theory
Fisher effect
#9
What is the term used to describe the risk that a bond issuer may default on its obligations?
Interest rate risk
Market risk
Credit risk
Inflation risk
#10
Which type of bond pays a fixed interest rate and has a maturity date that the issuer is legally obligated to repay?
Zero-coupon bond
Callable bond
Convertible bond
Straight bond
#11
Which of the following bond valuation methods discounts all future cash flows at the bond's yield to maturity?
Discounted cash flow (DCF) analysis
Net present value (NPV) method
Dividend discount model (DDM)
Internal rate of return (IRR)
#12
Which of the following is NOT a limitation of the expectations theory?
It assumes that investors are risk-neutral
It does not account for risk premiums
It does not consider transaction costs
It assumes perfect market segmentation
#13
What does a negative convexity indicate for a bond's price sensitivity to interest rate changes?
The bond's price decreases faster than the interest rate increases
The bond's price increases faster than the interest rate decreases
The bond's price is not affected by interest rate changes
The bond's price changes in the opposite direction to interest rate changes
#14
Which of the following factors does NOT affect bond duration?
Coupon rate
Yield to maturity
Market demand
Maturity date