1) Which of the statements below is FALSE?
A) If you invest money for a short period and buy a six-month CD, you will not receive as high an interest rate as if you bought a CD with a longer maturity period.
B) The difference in rates as the borrowing time or investment horizon increases is due to the maturity premium of the investments.
C) The maturity premium represents that portion of the yield that compensates the investor for the additional waiting time or the lender for the additional time it takes to receive repayment in full.
D) The longer the loan, the greater the risk of nonpayment and the lower the interest rate the lender demands.
2) If we want to get some idea about a(n) ________ over time between two specific assets, we can compare the returns on top-rated corporate bonds and U.S. government bonds.
A) inflation premium
B) default premium
C) maturity premium
D) liquidity premium
3) A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.
A) long-term equity
B) long-term debt
C) short-term debt
D) short-term equity
4) The ________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.
A) current yield
B) yield to maturity
C) prime rate
D) coupon rate
5) Blackburn Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ________.
A) $100
B) $90
C) $50
D) $45