Lecture 4.1 &4.2

Question 1

the negative impact of changes in interest rates on future prices and therefore returns

Answer 1

price risk/interest rate risk

Question 2

the relation between bond YTM and the number of years until they mature

Answer 2

term structure of interest rates

Question 3

the expected interest paid by borrowers who are borrowing for longer terms

Answer 3

term premium

Question 4

the risk we will not earn out expected return because we do not receive all of the loan payments

Answer 4

default risk

Question 5

the expected interest paid by borrowers who are more likely to default

Answer 5

credit risk premium

Question 6

unadjusted dollar amounts

Answer 6

nominal

Question 7

amounts that consider the amount of consumption that can occur

Answer 7

real

Question 8

the real rate of return earned by short term default risk-free bond or loan; typically measured as the yield to maturity on 3 month U.S. treasury bills

Answer 8

Risk-free rate