The Two Interconnected Concepts That Lie at the Heart of Many

question 90

Multiple Choice

The two interconnected concepts that lie at the heart of many financial crises are:

• A) rational expectations and leverage.
• B) irrational expectations and forecasting.
• C) forecasting and leverage.
• D) irrational expectations and leverage.

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Definitions:

Zero-coupon Bonds

Debt securities that are issued at a discount to their face value and do not pay interest during their life but are redeemed at full face value at maturity.

Yield To Maturity

The total return expected on a bond if the bond is held until its maturity date, incorporating both interest payments and the capital gain or loss.

Discount

The reduction applied to the nominal or face value of something, typically used in the context of bonds or selling goods and services at below their listed prices.

Coupon Bond

A bond that pays the holder a fixed interest rate (the coupon) periodically until maturity, at which point the principal and final interest payment are made.