Which of the following statements is/are false, all else the same? 1. Present values increase as the discount rate increases. II. Present values increase the further away in time the future value. III. Present values are always smaller than future values when both rand t are positive.
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- Which of the following statements is TRUE regarding the Fisher Effect? A. The Fisher Effect illustrates the inverse relationship between inflation and nominal interest rates. B. Nominal interest rates are directly related to expected inflation in part because borrowers want to protect their purchasing power reward from being wiped out by lower inflation. C. If prices rise by 7% and your salary increases by 9%, you will experience a gain of purchasing power D. Ceteris paribus, the higher the inflation, the higher the real interest rate Explain all optionsWhich of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.Which of the following statements is true about the present value factors? a. The present value factor is the reciprocal of the present value of annuity due factor. b. The present value factor decreases as the interest rate decreases. c. The present value factor is also known as the discount factor. d. The present value factor should always be greater than 1.
- Which of the following statements is CORRECT about the yield curve? A) The yield curve shows the behaviour of interest rate forecasts. B) When short-term rates are lower than long-term rates, there is a downward-sloping yield curve. C) A downward-sloping yield curve shows that investors demand an additional risk premium for lending money over the long term. D) A downward-sloping yield curve indicates that the market expects a future rise in interest rates.Determine whether the following statements are TRUE or FALSE. Briefly explain your answers. (a) “When a consol is priced above its par value, the yield to maturity equals coupon rate.” (b) "If the actual inflation rate is higher than expected, both borrowers and lenders will lose"If the inflation rate is positive, the expected NPV of an investment will be: A.understated if real cashflows are discounted by the nominal discount rate. B. understated if nominal cashflows are discounted by the nominal discount rate. C. overstated if the real cashflows are discounted by the nominal discount rate. D. understated if the nominal cashflows are discounted by the real discount rate.
- If the forward rate is expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then: a. the international Fisher effect (IFE) is refuted. b. the international Fisher effect (IFE) is supported. c. covered interest arbitrage is feasible. d. the average absolute error from forecasting would equal zero.True or false When the net present value is negative, the present value index will be greater than 1?If the economy is getting better, what's the most likley result in the Default Risk Premium Spreads? O. The Demand Curve will shift left (down) O. The Demand Curve will shift right (up) O. Increases (Widens) O. Decreaces (narrows)
- Under the expectations hypothesis, if the yield curve is upward-sloping, the market must expect an increase in short-term interest rates. True/false/uncertain? Why?Which of the following statements is true about the present value factors? The present value factor is the reciprocal of the present value of annuity due factor. The present value factor is also known as the discount factor. The present value factor decreases as the interest rate decreases. The present value factor should always be greater than 1.Which one of the following statements is false concerning the term structure of interest rates? Group of answer choices The real rate of return has minimal, if any, effect on the slope of the term structure of interest rates. The interest rate risk premium increases as the time to maturity increases. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. As the maturity increases the term structure of interest rates is always an upward sloping curve.