the economics of money, banking, and financial markets

110 #

© 2014 Pearson Canada Inc.#

17. 
    

    If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to
    maturity of 7 percent, then the real interest rate on this bond is ____.
    A) -3 percent
    B) -2 percent
    C) 3 percent
    D) 7 percent
    Answer: C
    Diff: 2 Type: MC Page Ref: 79
    Skill: Applied
    Objective List: 4.3 Examine the distinction between real and nominal interest rates

    
    


18. 
    

    The interest rate on Real Return Bonds is a direct measure of ____.
    A) the real interest rate
    B) the nominal interest rate
    C) the rate of inflation
    D) the rate of deflation
    Answer: A
    Diff: 1 Type: MC Page Ref: 81
    Skill: Recall
    Objective List: 4.3 Examine the distinction between real and nominal interest rates

    
    


19. 
    

    Assuming the same coupon rate and maturity length, the difference between the yield on a
    Real Return Bond and the yield on a Canada bond provides insight into ____.
    A) the nominal interest rate
    B) the real interest rate
    C) the nominal exchange rate
    D) the expected inflation rate
    Answer: D
    Diff: 1 Type: MC Page Ref: 81
    Skill: Recall
    Objective List: 4.3 Examine the distinction between real and nominal interest rates

    
    


20. 
    

    Assuming the same coupon rate and maturity length, when the interest rate on a Real Return
    Bond is 3 percent, and the yield on a nonindexed Canada bond is 8 percent, the expected rate of
    inflation is ____.
    A) 3 percent
    B) 5 percent
    C) 8 percent
    D) 11 percent
    Answer: B
    Diff: 2 Type: MC Page Ref: 81
    Skill: Applied
    Objective List: 4.3 Examine the distinction between real and nominal interest rates