Market Interest Rates Have Risen Substantially in the Five Years

question 32

Multiple Choice

Market interest rates have risen substantially in the five years since an investor purchased Treasury bonds that were offering a 7 percent return.If the investor sells now she is likely to receive:

• A)greater than a 7 percent total return.
• B)less than a 7 percent total return.
• C)a 7 percent total rate of return.
• D)a 7 percent nominal return but less than a 7 percent real return.

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Definitions:

Interest Rate

The cost of borrowing money or the return on investment, typically expressed as a percentage of the principal amount.

Credit Risk

The chance of incurring a loss due to a borrower's inability to pay back a loan or fulfill agreed-upon terms.

Interest Rate

The rate of a loan that is attributed as interest for the borrower, often presented as an annual percentage of the outstanding amount of the loan.

Bankruptcy

A legal procedure for dealing with debt problems of individuals and businesses; officially declaring the inability to pay outstanding debts.