1. The nominal interest rate parity condition states that
while nominal returns are equalized across all foreign and domestic assets, real returns may vary widely.
when domestic and foreign assets have identical risk, liquidity, and information characteristics, their nominal returns must also be identical.
while real returns are equalized across all foreign and domestic assets, nominal returns may vary widely.
domestic and foreign assets must have nominal returns that are identical, irrespective of the characteristics of the assets
2. A 20-year bond with a 7% annual coupon has a yield to maturity of 9%. Which of the following statements is CORRECT?
A. The bond’s current yield is greater than 9%.
B. The bond is selling above its par value.
C. If the yield to maturity remains constant, the bond’s price one year from now will be higher than its current price.
D. The bond is selling at a premium.
E. If the yield to maturity remains constant, the bond’s price one year from now will be lower than its current price.