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

Question 5

the expected interest paid by borrowers who are more likely to default (fail to repay all of their debt and interest

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 yeild to maturity on 3 month U.S treasury bills

Answer 8

Risk-Free Rate

Question 9

stock portfolio index constructed of all stocks that trade on the NYSE NASDAQ and American Exchange

Answer 9

CRSP Index