International Finance And Treasury - Study Mode

[#421] In zero coupon bonds, impact of lower duration on maturity is that
Correct Answer

(A) maturity will be higher

Explanation

Solution: In zero coupon bonds, impact of lower duration on maturity is that maturity will be higher. A zero-coupon bond is a debt security instrument that does not pay interest. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. The difference between the purchase price of a zero-coupon bond and the par value, indicates the investor's return.

[#422] Interest rate that investors receive on financial security to calculate fair value of security is classified as
Correct Answer

(C) required rate of return

Explanation

Solution: Interest rate that investors receive on financial security to calculate fair value of security is classified as required rate of return. The required rate of return is the minimum return an investor expects to achieve by investing in a project. An investor typically sets the required rate of return by adding a risk premium to the interest percentage that could be gained by investing excess funds in a risk-free investment.

[#423] Change in interest rate measured in percentage for given interest rate change is classified as
Correct Answer

(B) elasticity

Explanation

Solution: Change in interest rate measured in percentage for given interest rate change is classified as elasticity. Elasticity is a measure of a variable's sensitivity to a change in another variable. In business and economics, elasticity refers the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes.

[#424] In zero coupon bonds, impact of higher duration on maturity is that
Correct Answer

(D) maturity will be lower

Explanation

Solution: In zero coupon bonds, impact of higher duration on maturity is that maturity will be lower. A zero-coupon bond is a debt security instrument that does not pay interest. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. The difference between the purchase price of a zero-coupon bond and the par value, indicates the investor's return.

[#425] In zero coupon bonds, increase in duration with respect to maturity must be at
Correct Answer

(A) decreasing rate

Explanation

Solution: In zero coupon bonds, increase in duration with respect to maturity must be at decreasing rate. A zero-coupon bond is a debt security instrument that does not pay interest. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. The difference between the purchase price of a zero-coupon bond and the par value, indicates the investor's return.