Question 1

If a one year zero-coupon bond has a face value of $1,000 and a discount rate of 8.7 percent, its original selling price is

Accepted Answer

A)  $900. 
B)  $920. 
C)  $950. 
D)  $960. 
A)  $900. 
B)  $920. 
C)  $950. 
D)  $960. B

Question 2

An investor pays $1,230 for a bond with a face value of $1,000 and an annual coupon rate of 9 percent. The investor plans to hold the bond until its maturity date in eight years. The bond has a yield to maturity of __________ percent. (Note: This question requires a financial calculator.)

Accepted Answer

A)  5.39 
B)  5.67 
C)  10.94 
D)  9.00 
A)  5.39 
B)  5.67 
C)  10.94 
D)  9.00 A

Question 3

The dollar amount of interest is largest for a four-year loan if the interest is compounded

Accepted Answer

A)  daily. 
B)  monthly. 
C)  annually. 
D)  once every two years. 
A)  daily. 
B)  monthly. 
C)  annually. 
D)  once every two years. A

Question 4

Paul Oldy just purchased a $2,000 face value bond with. The bond pays $45 in interest semiannually. Paul could sell the bond today for $2,050. The current yield on this bond is __________ percent.

Accepted Answer

A)  2.25 
B)  2.20 
C)  4.50 
D)  4.39 
A)  2.25 
B)  2.20 
C)  4.50 
D)  4.39

Question 5

The supply of loanable funds is equivalent to the

Accepted Answer

A)  demand for loanable funds. 
B)  supply of securities. 
C)  demand for securities. 
D)  supply of bonds. 
A)  demand for loanable funds. 
B)  supply of securities. 
C)  demand for securities. 
D)  supply of bonds.

Question 6

The most widely used measure of interest rates in bond markets is the

Accepted Answer

A)  coupon rate. 
B)  discount rate. 
C)  yield to maturity. 
D)  current yield. 
A)  coupon rate. 
B)  discount rate. 
C)  yield to maturity. 
D)  current yield.

Question 7

Which of the following is the correct formula for calculating simple interest?

Accepted Answer

A)  Interest = Principal × Rate ÷ Time 
B)  Interest = Principal × Rate × Time 
C)  Interest = Principal × (Time + Rate) 
D)  Interest = Principal × (1 + Rate) 
A)  Interest = Principal × Rate ÷ Time 
B)  Interest = Principal × Rate × Time 
C)  Interest = Principal × (Time + Rate) 
D)  Interest = Principal × (1 + Rate)

Question 8

Paul would like to buy a consol promising an interest rate of 8 percent and paying $90 annually. Paul should not pay more than $__________ for the console.

Accepted Answer

A)  90 
B)  1,000 
C)  1,125 
D)  900 
A)  90 
B)  1,000 
C)  1,125 
D)  900

Question 9

Interest rates have fallen since the early 1980s because the

Accepted Answer

A)  federal deficit has declined. 
B)  federal deficit has increased. 
C)  inflation rate has declined. 
D)  inflation rate has increased. 
A)  federal deficit has declined. 
B)  federal deficit has increased. 
C)  inflation rate has declined. 
D)  inflation rate has increased.

Question 10

The yield to maturity of a zero-coupon bond with a one-year maturity, a face value of $1,000, and a purchase price of $909 is closest to

Accepted Answer

A)  10 percent. 
B)  11 percent. 
C)  9 percent. 
D)  5 percent. 
A)  10 percent. 
B)  11 percent. 
C)  9 percent. 
D)  5 percent.

Question 11

An individual pays $4,000 for a $5,000 face value, coupon-bearing bond that pays $400 per year and will be held until it matures in ten years. The current yield on this bond is

Accepted Answer

A)  10 percent. 
B)  8 percent. 
C)  6 percent. 
D)  5 percent. 
A)  10 percent. 
B)  8 percent. 
C)  6 percent. 
D)  5 percent.

Question 12

If an investor paid $900 for a bond with a $1,000 face value and a current yield of 10 percent, then the coupon rate is

Accepted Answer

A)  9 percent. 
B)  10 percent. 
C)  12 percent. 
D)  15 percent. 
A)  9 percent. 
B)  10 percent. 
C)  12 percent. 
D)  15 percent.

Question 13

Quincy Ritter pays $1,100 for a bond with a face value of $1,000. The coupon rate is 10 percent, and payments are made annually. The current yield is equal to

Accepted Answer

A)  9.5 percent. 
B)  9.1 percent. 
C)  10 percent. 
D)  11.1 percent. 
A)  9.5 percent. 
B)  9.1 percent. 
C)  10 percent. 
D)  11.1 percent.

Question 14

The annual dollar interest payment of a security is equal to $60, and the security currently sells for $400. The current yield of this security is equal to

Accepted Answer

A)  7 percent. 
B)  10 percent. 
C)  15 percent. 
D)  24 percent. 
A)  7 percent. 
B)  10 percent. 
C)  15 percent. 
D)  24 percent.

Question 15

The total amount of interest collected after two years from a $6,000 loan with an annual interest rate of 6 percent compounded annually is equal to $__________.

Accepted Answer

A)  720.00 
B)  741.60 
C)  360.00 
D)  6,720.00 
A)  720.00 
B)  741.60 
C)  360.00 
D)  6,720.00

Question 16

When the Fed tightens monetary policy during business expansions, the __________ loanable funds shifts to the __________.

Accepted Answer

A)  demand for; right 
B)  demand for; left 
C)  supply of; left 
D)  supply of; right 
A)  demand for; right 
B)  demand for; left 
C)  supply of; left 
D)  supply of; right

Question 17

An increase in the expected rate of inflation causes

Accepted Answer

A)  a decrease in the demand for loanable funds. 
B)  an increase in the supply of loanable funds. 
C)  interest rates to rise. 
D)  interest rates to fall. 
A)  a decrease in the demand for loanable funds. 
B)  an increase in the supply of loanable funds. 
C)  interest rates to rise. 
D)  interest rates to fall.

Question 18

The level of interest rates tends to __________ during periods of business cycle expansion and __________ during periods of cyclical recession.

Accepted Answer

A)  rise; rise 
B)  fall; rise 
C)  rise; fall 
D)  fall; fall 
A)  rise; rise 
B)  fall; rise 
C)  rise; fall 
D)  fall; fall

Question 19

An increase in saving by households will

Accepted Answer

A)  result in a lower equilibrium interest rate. 
B)  raise the equilibrium interest rate. 
C)  have no effect on the equilibrium interest rate. 
D)  lower the price of securities. 
A)  result in a lower equilibrium interest rate. 
B)  raise the equilibrium interest rate. 
C)  have no effect on the equilibrium interest rate. 
D)  lower the price of securities.

Question 20

A consol has an annual coupon payment of $100 and a price of $800. The yield on this security is equal to __________ percent

Accepted Answer

A)  6 
B)  10 
C)  12.5 
D)  14 
A)  6 
B)  10 
C)  12.5 
D)  14

Exam 4: Interest Rate Measurement and Behavior

If a one year zero-coupon bond has a face value of $1,000 and a discount rate of 8.7 percent, its original selling price is

An investor pays $1,230 for a bond with a face value of $1,000 and an annual coupon rate of 9 percent. The investor plans to hold the bond until its maturity date in eight years. The bond has a yield to maturity of __________ percent. (Note: This question requires a financial calculator.)

The dollar amount of interest is largest for a four-year loan if the interest is compounded

Paul Oldy just purchased a $2,000 face value bond with. The bond pays $45 in interest semiannually. Paul could sell the bond today for $2,050. The current yield on this bond is __________ percent.

The supply of loanable funds is equivalent to the

The most widely used measure of interest rates in bond markets is the

Which of the following is the correct formula for calculating simple interest?

Paul would like to buy a consol promising an interest rate of 8 percent and paying $90 annually. Paul should not pay more than $__________ for the console.

Interest rates have fallen since the early 1980s because the

The yield to maturity of a zero-coupon bond with a one-year maturity, a face value of $1,000, and a purchase price of $909 is closest to

An individual pays $4,000 for a $5,000 face value, coupon-bearing bond that pays $400 per year and will be held until it matures in ten years. The current yield on this bond is

If an investor paid $900 for a bond with a $1,000 face value and a current yield of 10 percent, then the coupon rate is

Quincy Ritter pays $1,100 for a bond with a face value of $1,000. The coupon rate is 10 percent, and payments are made annually. The current yield is equal to

The annual dollar interest payment of a security is equal to $60, and the security currently sells for $400. The current yield of this security is equal to

The total amount of interest collected after two years from a $6,000 loan with an annual interest rate of 6 percent compounded annually is equal to $__________.

When the Fed tightens monetary policy during business expansions, the __________ loanable funds shifts to the __________.

An increase in the expected rate of inflation causes

The level of interest rates tends to __________ during periods of business cycle expansion and __________ during periods of cyclical recession.

An increase in saving by households will

A consol has an annual coupon payment of $100 and a price of $800. The yield on this security is equal to __________ percent

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

When the Fed tightens monetary policy during business expansions, the loanable funds shifts to the .

The level of interest rates tends to during periods of business cycle expansion and during periods of cyclical recession.