FIN435 Class Web Page, Spring '24

Jacksonville University

Instructor: Maggie Foley

The Syllabus Overall Grade calculator

Exit Exam Questions (will be posted in week 10 on blackboard)

Term Project (on efficient frontier, updated, due with final)

Weekly SCHEDULE, LINKS, FILES and Questions

Week

Coverage, HW, Supplements

-       Required

 

Reading Materials

Week

1

Marketwatch Stock Trading Game (Pass code: havefun)

Risk Tolerance Test https://jufinance.com/risk_tolerance.html


Use the information and directions below to join the game.

1.     URL for your game: 
https://www.marketwatch.com/game/jufin435-24s    

2.     Password for this private game: havefun.

3.     Click on the 'Join Now' button to get started.

4.     If you are an existing MarketWatch member, login. If you are a new user, follow the link for a Free account - it's easy!

5.     Follow the instructions and start trading!

6. Game will be over on 4/22/2022

 

How to Use Finviz Stock Screener  (youtube, FYI)

 

How To Win The MarketWatch Stock Market Game (youtube, FYI)

 

How Short Selling Works (Short Selling for Beginners) (youtube, FYI)

 

 

 

 

Chapter 6 Interest rate

 

Chapter summary

1)     Shape of Yield Curve

i)      Inverted Yield Curve Indicates Recession: The shape of the yield curve, particularly when inverted, serves as a significant indicator of an impending recession.

2)     Expectation Theory

3)     Interest Rate Breakdown

i)      Breaking down interest rates involves considering various components:

Real Interest Rate

Inflation Premium:

Default Premium:

Liquidity Premium:

Maturity Premium:

 

For class discussion:

Interest Rate Volatility:

       What factors could explain the recent spike in interest rates compared to a year ago?

Economic Conditions and Rates:

       How do economic indicators like inflation, unemployment, and GDP growth contribute to the determination of interest rates?

Central Banks' Role:

       What role do central banks play in setting and adjusting interest rates, and how does their decision-making impact the economy?

Global Economic Influence:

       How do international economic conditions and events contribute to fluctuations in domestic interest rates?

Impact on Borrowers and Savers:

       Discuss the effects of high interest rates on borrowers and savers, both at the individual and business levels.

Investor Behavior:

       How does investor behavior respond to changes in interest rates, and what role does sentiment play in influencing rate movements?

 

Part I: Who determines interest rates in the US?

ppt

 

 

Market data website:

 http://finra-markets.morningstar.com/BondCenter/Default.jsp (FINRA bond market data)

 

Market watch on Wall Street Journal has daily yield curve and interest rate information. 

http://www.marketwatch.com/tools/pftools/

http://www.youtube.com/watch?v=yph8TRldW6k

The yield curve (Video, Khan academy)

 

 

Daily Treasury Par Yield Curve Rates

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024

Date

1 Mo

2 Mo

3 Mo

4 Mo

6 Mo

1 Yr

2 Yr

3 Yr

5 Yr

7 Yr

10 Yr

20 Yr

30 Yr

01/02/2024

5.55

5.54

5.46

5.41

5.24

4.80

4.33

4.09

3.93

3.95

3.95

4.25

4.08

01/03/2024

5.54

5.54

5.48

5.41

5.25

4.81

4.33

4.07

3.90

3.92

3.91

4.21

4.05

01/04/2024

5.56

5.48

5.48

5.41

5.25

4.85

4.38

4.14

3.97

3.99

3.99

4.30

4.13

01/05/2024

5.54

5.48

5.47

5.41

5.24

4.84

4.40

4.17

4.02

4.04

4.05

4.37

4.21

01/08/2024

5.54

5.48

5.49

5.39

5.24

4.82

4.36

4.11

3.97

3.99

4.01

4.33

4.17

01/09/2024

5.53

5.46

5.47

5.38

5.24

4.82

4.36

4.09

3.97

4.00

4.02

4.33

4.18

 

In class exercise based on the above table,

       Draw yield curve on 1/2/2024, and 1/9/2024.

       Why do interest rates change on a daily basis?

1. What is the term structure of interest rates based on the provided yield curve data?

A) Inverted

B) Flat

C) Normal

Answer: A

Explanation: An inverted yield curve often suggests market expectations of economic downturn.

 

2. Which maturity shows the highest interest rate in the data?

A) 1 month

B) 10 Years

C) 30 Years

Answer: A

Explanation: The yield for the 1-month maturity is 5.5%, the highest among the options.

 

3. What does a downward-sloping yield curve suggest about market expectations?

A) Economic expansion

B) Economic contraction

C) Stable economic conditions

Answer: B

Explanation: An inverted yield curve often indicates expectations of economic downturn.

 

4. How does the yield for the 10-year maturity compare to the 1-year maturity on 01/05/2024?

A) Higher

B) Lower

C) Equal

Answer: B

Explanation: The yield for the 10-year maturity (4.05%) is lower than the 1-year maturity (4.84%).

 

5. Based on the data, what can be inferred about market confidence in the short term?

A) High confidence

B) Low confidence

C) Stable confidence

Answer: B

Explanation: Short-term yields are relatively high, indicating potential uncertainty or risk. Remember: Price and yield tend to move in opposite direction.

6. If the yield for the 3-month maturity decreases significantly, what might this signal about short-term economic expectations?

A) Economic expansion

B) Economic contraction

C) Stable economic conditions

Answer: A

Explanation: A decrease in short-term yields could suggest increased confidence in economic growth.

 

Treasury Inflation Protected Securities (TIPS)

NAME

COUPON

PRICE

YIELD

1 MONTH

1 YEAR

TIME (EST)

GTII5:GOV

5 Year

2.38

102.79

1.76%

-32

+25

2:46 AM

GTII10:GOV

10 Year

1.38

96.48

1.78%

-21

+40

2:46 AM

GTII20:GOV

20 Year

0.75

80.63

2.03%

-8

+48

2:46 AM

GTII30:GOV

30 Year

1.50

89.28

1.99%

-3

+51

2:46 AM

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

 

       Expected Inflation=5-year Treasury yield rate 5-year TIPS rate

In this formula, the 10-year Treasury yield rate is indeed expected to be higher than the 10-year TIPS rate. The rationale is that the nominal Treasury yield includes both the real interest rate and the market's expectation for inflation, while the TIPS rate provides the real interest rate. Therefore, subtracting the TIPS rate from the Treasury yield gives an estimate of the market's expectation for inflation over the specified period.

 

 

In Class Exercise:

       What is TIPs?

 

 

Who Determines Interest Rates?

https://www.investopedia.com/ask/answers/who-determines-interest-rates/

 

By NICK K. LIOUDIS  Updated Aug 15, 2019

 

Interest rates are the cost of borrowing money. They represent what creditors earn for lending you money. These rates are constantly changing, and differ based on the lender, as well as your creditworthiness. Interest rates not only keep the economy functioning, but they also keep people borrowing, spending, and lending. But most of us don't really stop to think about how they are implemented or who determines them. This article summarizes the three main forces that control and determine interest rates.

KEY TAKEAWAYS

  • Interest rates are the cost of borrowing money and represent what creditors earn for lending money.
  • Central banks raise or lower short-term interest rates to ensure stability and liquidity in the economy.
  • Long-term interest rates are affected by demand for 10- and 30-year U.S. Treasury notes.
  • Low demand for long-term notes leads to higher rates, while higher demand leads to lower rates.
  • Retail banks also control rates based on the market, their business needs, and individual customers.

 

Short-Term Interest Rates: Central Banks

In countries using a centralized banking model, short-term interest rates are determined by central banks. A government's economic observers create a policy that helps ensure stable prices and liquidity. This policy is routinely checked so the supply of money within the economy is neither too large, which causes prices to increase, nor too small, which can lead to a drop in prices.

In the U.S., interest rates are determined by the Federal Open Market Committee (FOMC), which consists of seven governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year to determine the near-term direction of monetary policy and interest rates. The actions of central banks like the Fed affect short-term and variable interest rates.

If the monetary policymakers wish to decrease the money supply, they will raise the interest rate, making it more attractive to deposit funds and reduce borrowing from the central bank. Conversely, if the central bank wishes to increase the money supply, they will decrease the interest rate, which makes it more attractive to borrow and spend money.

The Fed funds rate affects the prime ratethe rate banks charge their best customers, many of whom have the highest credit rating possible. It's also the rate banks charge each other for overnight loans.

The U.S. prime rate remained at 3.25% between Dec. 16, 2008 and Dec. 17, 2015, when it was raised to 3.5%.

 

Long-Term Interest Rates: Demand for Treasury Notes

Many of these rates are independent of the Fed funds rate, and, instead, follow 10- or 30-year Treasury note yields. These yields depend on demand after the U.S. Treasury Department auctions them off on the market. Lower demand tends to result in high interest rates. But when there is a high demand for these notes, it can push rates down lower.

If you have a long-term fixed-rate mortgage, car loan, student loan, or any similar non-revolving consumer credit product, this is where it falls. Some credit card annual percentage rates are also affected by these notes.

These rates are generally lower than most revolving credit products but are higher than the prime rate.

 

Many savings account rates are also determined by long-term Treasury notes.

 

Other Rates: Retail Banks

Retail banks are also partly responsible for controlling interest rates. Loans and mortgages they offer may have rates that change based on several factors including their needs, the market, and the individual consumer.

For example, someone with a lower credit score may be at a higher risk of default, so they pay a higher interest rate. The same applies to credit cards. Banks will offer different rates to different customers, and will also increase the rate if there is a missed payment, bounced payment, or for other services like balance transfers and foreign exchange.

In class exercise:

1.     Who is responsible for determining short-term interest rates in a centralized banking model?

A) Commercial Banks

B) Central Banks

C) Government Agencies

Answer: B

Explanation: In countries with a centralized banking model, short-term interest rates are determined by central banks.

 

2.     What committee in the U.S. is responsible for setting interest rates and monetary policy?

A) Federal Trade Commission (FTC)

B) Federal Reserve Act Committee (FRAC)

C) Federal Open Market Committee (FOMC)

Answer: C

Explanation: The FOMC, consisting of governors of the Federal Reserve Board and Federal Reserve Bank presidents, determines the near-term direction of monetary policy and interest rates in the U.S.

 

3.     How does a central bank decrease the money supply in the economy?

A) Increasing interest rates

B) Lowering interest rates

C) Printing more money

Answer: A

Explanation: Raising interest rates makes it more attractive to deposit funds, reducing borrowing and decreasing the money supply.

 

4.     Which factor primarily influences the yields of 10- or 30-year Treasury notes?

A) Federal Reserve decisions

B) Market demand

C) Commercial bank policies

Answer: B

Explanation: The yields of Treasury notes depend on demand in the market after auctions by the U.S. Treasury Department.

 

5.     What happens to interest rates when there is high demand for Treasury notes?

A) Rates increase

B) Rates decrease

C) Rates remain unchanged

Answer: B

Explanation: High demand for Treasury notes tends to push interest rates down.

 

6.     Who determines interest rates on loans and mortgages offered by retail banks?

A) Government agencies

B) Central banks

C) Retail banks

Answer: C

Explanation: Retail banks control the interest rates on the loans and mortgages they offer.

 

7.     Why might an individual with a lower credit score be charged a higher interest rate?

A) Higher credit risk

B) Lower credit risk

C) Government regulations

Answer: A

Explanation: Individuals with lower credit scores are considered higher risk, leading to higher interest rates.

 

Part II: Shapes of Yield Curve

For class discussion: What factors contributed to the shifts in yield curve shapes in 2023?

aa.png

Date

1 Mo

2 Mo

3 Mo

6 Mo

1 Yr

2 Yr

3 Yr

5 Yr

7 Yr

10 Yr

20 Yr

30 Yr

1/6/2020

1.54

1.54

1.56

1.56

1.54

1.54

1.56

1.61

1.72

1.81

2.13

2.28

1/6/2021

0.09

0.09

0.09

0.09

0.11

0.14

0.2

0.43

0.74

1.04

1.6

1.81

1/6/2022

0.04

0.05

0.1

0.23

0.45

0.88

1.15

1.47

1.66

1.73

2.12

2.09

1/6/2023

4.32

4.55

4.67

4.79

4.71

4.24

3.96

3.69

3.63

3.55

3.84

3.67

1/5/2024

5.54

5.48

5.47

5.24

4.84

4.4

4.17

4.02

4.04

4.05

4.37

4.21

https://www.gurufocus.com/yield_curve.php

Understanding the yield curve (video)

Introduction to the yield curve (khan academy)

image004.jpg

image068.jpg

image064.jpg

image070.jpg

image072.jpg

 

Chapter 6 Interest rate Part II: Term Structure of Interest rate

 

Calculator

 

image020.jpg

 

Question for discussion: If a% and b% are both known to investors, such as the bank rates, how much is the future interest rate, such as c%?

 

(1+a)^N = (1+b)^m *(1+c)^(N-M)

 

Either earning a% of interest rate for N years,

or b% of interest rate for M years, and then c% of interest rate for (N-M) years,

investors should be indifferent. Right?

 

Then,

(1+a)^N = (1+b)^m *(1+c)^(N-M) c = ((1+a)^N / (1+b)^m)^(1/(N-M))-1

 

Or approximately,

N*a = M*b +(N-M)*(c) c = (N*a M*b) /(N-M)

 

 

What Is Expectations Theory (video)

Expectations theory attempts to predict what short-term interest rates will be in the future based on current long-term interest rates. The theory suggests that an investor earns the same amount of interest by investing in two consecutive one-year bond investments versus investing in one two-year bond today. The theory is also known as the "unbiased expectations theory.

Understanding Expectations Theory

The expectations theory aims to help investors make decisions based upon a forecast of future interest rates. The theory uses long-term rates, typically from government bonds, to forecast the rate for short-term bonds. In theory, long-term rates can be used to indicate where rates of short-term bonds will trade in the future (https://www.investopedia.com/terms/e/expectationstheory.asp)

 

 

Expectations Theory

By CHRIS B. MURPHY  Updated Apr 21, 2019

 

Example of Calculating Expectations Theory

Let's say that the present bond market provides investors with a two-year bond that pays an interest rate of 20% while a one-year bond pays an interest rate of 18%. The expectations theory can be used to forecast the interest rate of a future one-year bond.

  • The first step of the calculation is to add one to the two-year bonds interest rate. The result is 1.2.
  • The next step is to square the result or (1.2 * 1.2 = 1.44).
  • Divide the result by the current one-year interest rate and add one or ((1.44 / 1.18) +1 = 1.22).
  • To calculate the forecast one-year bond interest rate for the following year, subtract one from the result or (1.22 -1 = 0.22 or 22%).

In this example, the investor is earning an equivalent return to the present interest rate of a two-year bond. If the investor chooses to invest in a one-year bond at 18% the bond yield for the following years bond would need to increase to 22% for this investment to be advantageous.

  • Expectations theory attempts to predict what short-term interest rates will be in the future based on current long-term interest rates
  • The theory suggests that an investor earns the same amount of interest by investing in two consecutive one-year bond investments versus investing in one two-year bond today
  • In theory, long-term rates can be used to indicate where rates of short-term bonds will trade in the future

 

Expectations theory aims to help investors make decisions by using long-term rates, typically from government bonds, to forecast the rate for short-term bonds.

 

Disadvantages of Expectations Theory

Investors should be aware that the expectations theory is not always a reliable tool. A common problem with using the expectations theory is that it sometimes overestimates future short-term rates, making it easy for investors to end up with an inaccurate prediction of a bonds yield curve.

Another limitation of the theory is that many factors impact short-term and long-term bond yields. The Federal Reserve adjusts interest rates up or down, which impacts bond yields including short-term bonds. However, long-term yields might not be as impacted because many other factors impact long-term yields including inflation and economic growth expectations. As a result, the expectations theory doesn't take into account the outside forces and fundamental macroeconomic factors that drive interest rates and ultimately bond yields.

Chapter 6 In class exercise

 

1 You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:

    • Inflation premium = 3.25%
    • Liquidity premium = 0.6%
    • Maturity risk premium = 1.8%
    • Default risk premium = 2.15%

On the basis of these data, what is the real risk-free rate of return?  (answer: 2.25%)

 

Solution:

General equation: Rate = r* + Inflation + Default + liquidity + maturity

30-day T-bills = short term Treasury Security Default = liquidity = maturity = 0

So 30-day T-bills = 5.5% = r* + inflation =r* + 3.25%

 

 2 The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?(answer: 6%, 6.33%)

 

Solution:

General equation: Rate = r* + Inflation + Default + liquidity + maturity

2-year T-notes = intermediate term Treasury Security Default = liquidity = 0, maturity=0 as given

Inflation = average of inflations from year 1 to year 2 = (2% + 4%)/2 = 3%

So 2-year T-notes = r* + inflation = 3% + 3% = 6%

 

3-year T-notes = short term Treasury Security Default = liquidity = 0, maturity=0 as given

Inflation = average of inflations from year 1 to year 2 = (2% + 4% +4%)/3 = 3.33%

So 2-year T-notes = r* + inflation = 3% + 3.33% = 6.33%

 

 

 

 3 A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?  (answer: 1.5%)

 

Solution:

General equation: Rate = r* + Inflation + Default + liquidity + maturity

10 year T-notes = intermediate term Treasury Security Default = liquidity = 0, maturity is not zero

So 10-year T-notes = r* + inflation + maturity = 6%

 

10 year corporate bond rate = r* + Inflation + Default + liquidity + maturity = 8%

Its liquidity = 0.5%, its maturity = 10-year-notes maturity.

 

Comparing 10 year T-notes and 10 year corporate bonds, we get default = 8%-6%-0.5%=1.5%

 

r*

inflation

default

liquity

maturity

10 - year- T-notes = 6%

Same

same

0

0

same

10 year corp bonds = 8%

Same

same

?

1.50%

same

 

 

4 The real risk-free rate is 3%, and inflation is expected  to be 3% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security? (answer: 0.2%)

 

General equation: Rate = r* + Inflation + Default + liquidity + maturity

2-year T-notes = intermediate term Treasury Security Default = liquidity = 0, maturity=?

2-year T-notes = 6.2% = r* + inflation + maturity = 3% + 3% + maturity

 

 

5 One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? (answer: 5.5%)

 

Or,

 

 

 

Real Interest rate in the US from 2000-2022

https://fred.stlouisfed.org/series/REAINTRATREARAT1YE

 

 

 

Three Month T-Bill rate (a proxy of the risk free rate)

 

https://www.cnbc.com/quotes/US3M

 

Untitled-modified (4).png

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Ave

2023

6.4

6

5

4.9

4

3

3.2

3.7

3.7

3.2

3.1

3

4

2022

7.5

7.9

8.5

8.3

8.6

9.1

8.5

8.3

8.2

7.7

7.1

6.5

8

2021

1.4

1.7

2.6

4.2

5

5.4

5.4

5.3

5.4

6.2

6.8

7

4.7

2020

2.5

2.3

1.5

0.3

0.1

0.6

1

1.3

1.4

1.2

1.2

1.4

1.2

2019

1.6

1.5

1.9

2

1.8

1.6

1.8

1.7

1.7

1.8

2.1

2.3

1.8

2018

2.1

2.2

2.4

2.5

2.8

2.9

2.9

2.7

2.3

2.5

2.2

1.9

2.4

2017

2.5

2.7

2.4

2.2

1.9

1.6

1.7

1.9

2.2

2

2.2

2.1

2.1

2016

1.4

1

0.9

1.1

1

1

0.8

1.1

1.5

1.6

1.7

2.1

1.3

2015

-0.1

0

-0.1

-0.2

0

0.1

0.2

0.2

0

0.2

0.5

0.7

0.1

2014

1.6

1.1

1.5

2

2.1

2.1

2

1.7

1.7

1.7

1.3

0.8

1.6

2013

1.6

2

1.5

1.1

1.4

1.8

2

1.5

1.2

1

1.2

1.5

1.5

2012

2.9

2.9

2.7

2.3

1.7

1.7

1.4

1.7

2

2.2

1.8

1.7

2.1

2011

1.6

2.1

2.7

3.2

3.6

3.6

3.6

3.8

3.9

3.5

3.4

3

3.2

2010

2.6

2.1

2.3

2.2

2

1.1

1.2

1.1

1.1

1.2

1.1

1.5

1.6

2009

0

0.2

-0.4

-0.7

-1.3

-1.4

-2.1

-1.5

-1.3

-0.2

1.8

2.7

-0.4

2008

4.3

4

4

3.9

4.2

5

5.6

5.4

4.9

3.7

1.1

0.1

3.8

2007

2.1

2.4

2.8

2.6

2.7

2.7

2.4

2

2.8

3.5

4.3

4.1

2.8

2006

4

3.6

3.4

3.5

4.2

4.3

4.1

3.8

2.1

1.3

2

2.5

3.2

2005

3

3

3.1

3.5

2.8

2.5

3.2

3.6

4.7

4.3

3.5

3.4

3.4

2004

1.9

1.7

1.7

2.3

3.1

3.3

3

2.7

2.5

3.2

3.5

3.3

2.7

2003

2.6

3

3

2.2

2.1

2.1

2.1

2.2

2.3

2

1.8

1.9

2.3

2002

1.1

1.1

1.5

1.6

1.2

1.1

1.5

1.8

1.5

2

2.2

2.4

1.6

2001

3.7

3.5

2.9

3.3

3.6

3.2

2.7

2.7

2.6

2.1

1.9

1.6

2.8

2000

2.7

3.2

3.8

3.1

3.2

3.7

3.7

3.4

3.5

3.4

3.4

3.4

3.4

https://www.usinflationcalculator.com/inflation/current-inflation-rates/#google_vignette

 

 

www.jufinance.com/video/fin435_chapter_6_case_video_1.mp4 (1/18/2023)

www.jufinance.com/video/fin435_chapter_6_case_video_2.mp4 (1/23/2023))

 

Chapter six case study (due with first mid term exam)

       

 

Chapter 7 Bond Valuation

 

ppt

 


https://investor.vanguard.com/investor-resources-education/article/are-bonds-a-good-investment-right-now

 

 

 

 

 

For discussion: https://jufinance.com/risk_tolerance.html

 

Bond Type

Characteristics

Suitability

Risk

Short-Term Bonds

Quick maturity, Low risk, Lower returns

Conservative, Need liquidity

Reinvestment Risk

Long-Term Bonds

Higher returns, High risk

Long-term, High risk tolerance

Default Risk; Market interest rate risk

Corporate Bonds

Higher yields, Higher risk, Company influence

Seeking returns, Accepting higher risk

Default Risk; Market interest rate risk (assuming long maturity)

Treasury Securities

Low risk, Steady income, Different maturities

Conservative, Stable income requirement

Market interest rate risk (assuming long maturity)

Municipal Bonds

Tax advantages, Credit risk

Tax-efficient income, Higher tax bracket

Default Risk; Market interest rate risk (assuming long maturity)

 

 

       Among the aforementioned bonds, do you have a preference? If so, what factors influence your choice?

 

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Outlook for Investing in Bonds in 2024

After starting the year recommending that investors focus on the middle of the yield curve, we began to advise investors to lengthen their duration in our midyear bond market update. According to our forecasts, we continue to think investors will be best served in longer-duration bonds and locking in the currently high interest rates. https://www.morningstar.com/markets/where-invest-bonds-2024

 

 

 

 

 

 Market data website:

FINRA:      https://www.finra.org/finra-data/fixed-income (FINRA bond market data)

 

 

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Relationship between bond prices and interest rates (Khan academy)

 

In class exercise

 

1)     What is the face value (par value) of the bond?

a. $500

b. $1,000

c. $1,500

2)     How often are coupon payments made on the bond?

a. Annually

b. Semi-annually

c. Quarterly

 

3)     If the bond has a two-year maturity, what is the total number of coupon payments made over its life?

a. 2

b. 4

c. 6