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16 Cards in this Set
- Front
- Back
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(T or F) STRIPS and TIPS are alike in that neither pays coupon interest. |
False STRIPS is zero-coupon bond, but TIPS pays interest at the fixed rate. |
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(T or F) TIPS are created by unbundling regular T-bonds into individual zero-coupon payments of interest or principal. |
False Correct if STRIPS |
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(T or F) Yields on TIPS are lower because they are in real terms, compared to yields on T-bonds and notes, which are in nominal terms. |
False Yields are in real terms. Yields on TIPS are lower than the nominal term in deflation, but higher than the nominal term in inflation. |
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(T or F) If you buy a T-note on the secondary market, it will always have less than 10 years to maturity. |
True T-notes mature usually 2-10 years while 10-30 years for T-bonds. |
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(T or F) STRIPS have very short maturities with low yields compared to other Treasure debt securities. |
False ? Very short maturities, don't know whether yields are high or low. |
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What risk measure best highlights the potential loss from extreme negative returns? |
Value at Risk VaR |
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(T or F) The real rate of interest is approximately equal to the nominal rate times the inflation rate. |
False R = π + i (not multiply) |
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(T or F) The nominal interest rate would not be affected by the coupon rate on previously issued bonds. |
True? |
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(T of F) "Bracket Creep" arises when tax liabilities are based on nominal income and there is a positive inflation rate. |
True Bracket Creep is a situation where inflation pushes income into higher tax brackets. The result is an increase in income taxes but no increase in real purchasing power. |
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(T or F) The presence of risk means that the standard deviation of the payoff is larger than its expected value. |
False The presence of risk means that more than one outcome is possible. |
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The "_____" rate of a portfolio is the return a risk-less investment would need to offer to be equally attractive as the risky portfolio. |
The "certainty-equivalent" rate of a portfolio |
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(T or F) An open-end mutual fund offers investors a guaranteed rate of return. |
False |
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(T or F) Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000 do not outperform the market. |
True Most actively managed mutual funds fail to equal the return earned by index funds, possibly due to higher transactions costs. |
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Pools of money invested in a portfolio that is fixed for the life of the fund are called _____. |
Unit investment trusts |
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(T or F) Investors in closed-end funds who wish to liquidate their positions must sell their shares back to the issuer at NAV. |
False must sell their shares through a broker. |
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(T or F) REITs invest in real estate or loans secured by real estate, but in other respects are similar to open-end funds, with shares redeemable at NAV. |
False REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages. |
