If interest rates increase because of a previously unanticipated inflation rate risk? long-lived debt instruments will decline more than short-lived debt instruments long-lived debt instruments will decline less than short-lived debt instruments neither set of debt instruments will decline all other things being equal, both should decline equally

If interest rates increase because of a previously unanticipated inflation rate risk? long-lived debt instruments will decline more than short-lived debt instruments long-lived debt instruments will decline less than short-lived debt instruments neither set of debt instruments will decline all other things being equal, both should decline equally

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5QTD

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Which one of the following statements is correct? Real rates must exceed inflation rates. Real interest rates might be positive, zero, or even negative. Nominal interest rates are not affected by inflation rates. Real interest rates will be positive as long as the inflation rate is positive. The Fisher hypothesis advocates that real interest rates follow inflation rates.
Which one of the following statements is correct? A. Real rates must exceed inflation rates. B. Real interest rates might be positive, zero, or even negative. C. Nominal interest rates are not affected by inflation rates. D. Real interest rates will be positive as long as the inflation rate is positive. E. The Fisher hypothesis advocates that real interest rates follow inflation rates.
Why should we care what the Term Structure of Interest Rates looks like? The Expectations Theory of the Term Structure of Interest Rates implies that the term structure is the result of expected inflation rates in the future. What else might cause the term structure to be what it is, that might not be in the Expectations Theory?
Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?
firm with heavy long-term debt can benefit during inflationary times, as debt can be repaid with "cheaper" dollars. True or False True False
If interest rates increase, the value of a fixed income contract decreases and vice versa. true? false?
Why interest rate tends to increases before the crisis and then decline during the crisis? (refer to image)
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.
As inflation increases, the impact of the tilt effect is said to become even more burdensome on borrowers. Why is this so?
How low can nominal interest rates go? Explain why they can become negative.
Is default risk premium likely to be pro-cyclical (i.e., increasing during economic expansion) or counter-cyclical (i.e., increasing during the economic recession)? Why?
A disadvantage of holding TIPS is A If inflation does not occur then the value of holding TIPS decreases B Investors are paid less than their original principal upon maturity C Interest rate on TIPS is usually higher because of default risk D All of the above

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		long-lived debt instruments will decline more than short-lived debt instruments
		long-lived debt instruments will decline less than short-lived debt instruments
		neither set of debt instruments will decline
		all other things being equal, both should decline equally