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Question 1

The ratio of the net cash flows and the principal or initial investment.

Answer 1

Rate of Return

Question 2

Rate of return measured for a given period which can be in a month or in a year.

Answer 2

Holding period return

Question 3

Are the revenues, earnings, yields, proceeds, income, or profit from some undertakings made, like financial investment, capital investment, and business operation.

Answer 3

Return

Question 4

Try different rates until we find the rate that will make the price of the bond equal to present value of the interest payments plus the present value of the principal upon maturity.

Answer 4

Trial and Error

Question 5

Involves measuring the length of time to maturity or the term of the instrument on the horizontal axis or x-axis and the yield to maturity or interest rate on the vertical axis or y-axis.

Answer 5

None of these

Question 6

It is the period from the time the loan is acquired up to its maturity date.

Answer 6

Term of a loan

Question 7

Is the weighted average return of all assets in a portfolio.

Answer 7

Expected Return

Question 8

Tells us how much the actual return is expected to fluctuate around the average.

Answer 8

Standard Deviation

Question 9

Thomas ________ said that the yield on a long-term security is the geometric mean of the current short-term yield and the expected future short-term yields over its life.

Answer 9

1997

Question 10

___________ is the most liquid asset among others.

Answer 10

None of these

Question 11

Is the relationship of interest rates on bonds with the same term to maturity.

Answer 11

Risk Structure

Question 12

They are measured based on the net cash flow realized or expected to be realized from an investment or based on the net income from business operations.

Answer 12

Return

Question 13

Maturity value of an investment.

Answer 13

Terminal Value

Question 14

It is said to be ________________ if the purchase price is lower than the face value of the bond.

Answer 14

At a discount

Question 15

Measures the compounded growth rate of the initial investment

Answer 15

Geometric Average

Question 16

Means that interest rates are the same across the maturity spectrum, that is, among different maturities that may happen occasionally. This means that the YM is virtually unaffected by the term to maturity. They are not common, but do occur from time to time.

Answer 16

Flat Yield Curve

Question 16

This curve is formed when interest rates are lowest on short-term securities and it rises at a diminishing rate until the rates begin to level out on longer maturities.

Answer 16

Upward Sloping Yield Curve

Question 17

If the bond is trading below par ____________, we can assume the YM (discount rate) to be above the nominal rate on the bond and vice versa.

Answer 17

At a discount

Question 18

That short-term rates are higher than long-term rates which can happen under certain market conditions. This means that yields decline as maturity increases.

Answer 18

Downward Sloping Yield Curve

Question 19

Shows how much the actual returns deviate from the expected return.

Answer 19

Variance

Question 20

The interest earned plus the principal at the beginning of the period becomes the principal for the next period.

Answer 20

Compounding

Question 21

Is used to compare the outcomes of different investments. It is also used to measure historical performance, determining future investment and estimating cost of capital for capital investment decisions.

Answer 21

Rate of Return

Question 21

Means it will not affect the decision of the investor

Answer 21

Indifference

Question 22

Refer to the difference between the cash flows received from an investment and the cash flows expended on an investment.

Answer 22

Net Cash Flow

Question 23

Risk is the possibility that actual returns will deviate or differ from what is expected. The actual returns can go up or down depending on the market.

Answer 23

True

Question 24

The square root of variance

Answer 24

Standard Deviation

Question 24

Present value is the maturity value of an investment. Terminal values are the discounted value of the future returns.

Answer 24

False

Question 25

Investors have no institutional preferences for particular maturities. They regard various maturities as perfect substitutes for one another.

Answer 25

True

Question 26

Small numbers of investors form expectations about the future course of interest rates and act aggressively on those expectations.

Answer 26

False

Question 27

Investors prefer highly liquid, short-dated securities that can be sold quickly over long-dated securities.

Answer 27

True