Question 1

An increase in the demand for loanable funds causes

Accepted Answer

A)  the price of securities to rise. 
B)  interest rates to rise. 
C)  the supply of securities to shift to the left. 
D)  the demand for securities to shift to the right. 
A)  the price of securities to rise. 
B)  interest rates to rise. 
C)  the supply of securities to shift to the left. 
D)  the demand for securities to shift to the right.

Question 2

The total amount of interest collected after two years from a $6,000 loan with a simple annual interest rate of 6 percent is equal to

Accepted Answer

A)  $360. 
B)  $720. 
C)  $12,360. 
D)  $6,360. 
A)  $360. 
B)  $720. 
C)  $12,360. 
D)  $6,360.

Question 3

A 100-year, $1,000 loan that pays a 6 percent simple annual interest rate pays a total amount of interest of

Accepted Answer

A)  $60. 
B)  $600. 
C)  $6,000. 
D)  $60,000. 
A)  $60. 
B)  $600. 
C)  $6,000. 
D)  $60,000.

Question 4

A rightward shift in the supply of loanable funds curve could be caused by

Accepted Answer

A)  an easing of monetary policy. 
B)  a tightening of monetary policy. 
C)  increased government borrowing. 
D)  decreased government borrowing. 
A)  an easing of monetary policy. 
B)  a tightening of monetary policy. 
C)  increased government borrowing. 
D)  decreased government borrowing.

Question 5

A fall in interest rates will cause long-term bond prices to

Accepted Answer

A)  fall less than short-term bond prices. 
B)  fall more than short-term bond prices. 
C)  rise less than short-term bond prices. 
D)  rise more than short-term bond prices. 
A)  fall less than short-term bond prices. 
B)  fall more than short-term bond prices. 
C)  rise less than short-term bond prices. 
D)  rise more than short-term bond prices.

Question 6

A bond has an annual coupon rate of 7 percent, a $1,000 face value, and ten years remaining until maturity. The bond currently sells for $1,138. The yield to maturity for this bond is __________ percent. (Note: This question requires a financial calculator.)

Accepted Answer

A)  7.0 
B)  5.2 
C)  13.8 
D)  10.0 
A)  7.0 
B)  5.2 
C)  13.8 
D)  10.0

Question 7

Assume that an investor pays $900 for a bond with a face value of $1,000. If the bond pays 10 percent interest annually, the current yield is equal to

Accepted Answer

A)  9.5 percent. 
B)  9.1 percent. 
C)  10.0 percent. 
D)  11.1 percent. 
A)  9.5 percent. 
B)  9.1 percent. 
C)  10.0 percent. 
D)  11.1 percent.

Question 8

If an investor pays $925 for a bond with a face value of $1,000 and annual payments, it follows that

Accepted Answer

A)  the current yield and coupon rate are equal. 
B)  the coupon rate is greater than the current yield. 
C)  the current yield is greater than the coupon rate. 
D)  Insufficient information is provided to answer this question. 
A)  the current yield and coupon rate are equal. 
B)  the coupon rate is greater than the current yield. 
C)  the current yield is greater than the coupon rate. 
D)  Insufficient information is provided to answer this question.

Question 9

If an investor pays $1,025 for a bond with a face value of $1,000 and annual payments, it follows that

Accepted Answer

A)  the current yield and coupon rate are equal. 
B)  the coupon rate is greater than the current yield. 
C)  the current yield is greater than the coupon rate. 
D)  Insufficient information is provided to answer this question. 
A)  the current yield and coupon rate are equal. 
B)  the coupon rate is greater than the current yield. 
C)  the current yield is greater than the coupon rate. 
D)  Insufficient information is provided to answer this question.

Question 10

The __________ is the interest rate that makes the sum of present values for all future payments equal to a security's purchase price.

Accepted Answer

A)  yield to maturity 
B)  current yield 
C)  coupon rate 
D)  capital gain 
A)  yield to maturity 
B)  current yield 
C)  coupon rate 
D)  capital gain

Question 11

If the inflation rate is expected to be 5 percent and nominal interest rate is 9 percent, then the real interest rate will be

Accepted Answer

A)  14 percent. 
B)  9 percent. 
C)  5 percent. 
D)  4 percent. 
A)  14 percent. 
B)  9 percent. 
C)  5 percent. 
D)  4 percent.

Question 12

Julia hen just purchased a $1,000 face value bond for $987. The bond pays $50 in interest every six months and matures in five years. The yield to maturity for this bond is __________ percent. (Note: This question requires a financial calculator.)

Accepted Answer

A)  10.0 
B)  10.2 
C)  10.3 
D)  10.6 
A)  10.0 
B)  10.2 
C)  10.3 
D)  10.6

Question 13

The coupon rate is equal to the

Accepted Answer

A)  yield to maturity for all bonds. 
B)  present value of the bond. 
C)  real rate of return. 
D)  interest rate printed on the face of the bond. 
A)  yield to maturity for all bonds. 
B)  present value of the bond. 
C)  real rate of return. 
D)  interest rate printed on the face of the bond.

Question 14

Which of these will cause the equilibrium interest rate to rise?

Accepted Answer

A)  The savings rate decreases 
B)  Business borrowing decreases 
C)  The federal deficit decreases 
D)  Household borrowing increases 
A)  The savings rate decreases 
B)  Business borrowing decreases 
C)  The federal deficit decreases 
D)  Household borrowing increases

Question 15

Lenders expecting lower inflation will

Accepted Answer

A)  supply more loanable funds at each nominal interest rate. 
B)  supply less loanable funds at each nominal interest rate. 
C)  supply more loanable funds at each real interest rate. 
D)  supply less loanable funds at each real interest rate. 
A)  supply more loanable funds at each nominal interest rate. 
B)  supply less loanable funds at each nominal interest rate. 
C)  supply more loanable funds at each real interest rate. 
D)  supply less loanable funds at each real interest rate.

Question 16

The return on an asset with a purchase price of $940 and a selling price of $900 and coupon payments of $100 is

Accepted Answer

A)  6.4 percent. 
B)  6.7 percent. 
C)  14.9 percent. 
D)  15.6 percent. 
A)  6.4 percent. 
B)  6.7 percent. 
C)  14.9 percent. 
D)  15.6 percent.

Question 17

Interest rates are determined by the supply of and demand for

Accepted Answer

A)  financial services. 
B)  loanable funds. 
C)  currency. 
D)  consols. 
A)  financial services. 
B)  loanable funds. 
C)  currency. 
D)  consols.

Question 18

To calculate the yield to maturity on a bond, it is necessary to know the

Accepted Answer

A)  inflation rate. 
B)  T-bill rate. 
C)  coupon payments. 
D)  zero-coupon rate. 
A)  inflation rate. 
B)  T-bill rate. 
C)  coupon payments. 
D)  zero-coupon rate.

Question 19

A $1,000, 7 percent deposit pays interest compounded monthly. After six months, the deposit balance is $__________.

Accepted Answer

A)  1,036 
B)  1,501 
C)  1,350 
D)  1,420 
A)  1,036 
B)  1,501 
C)  1,350 
D)  1,420

Question 20

A rise in interest rates will cause short-term bond prices to

Accepted Answer

A)  fall less than long-term bond prices. 
B)  fall more than long-term bond prices. 
C)  rise more than long-term bond prices. 
D)  rise less than long-term bond prices. 
A)  fall less than long-term bond prices. 
B)  fall more than long-term bond prices. 
C)  rise more than long-term bond prices. 
D)  rise less than long-term bond prices.

Exam 4: Interest Rate Measurement and Behavior

An increase in the demand for loanable funds causes

The total amount of interest collected after two years from a $6,000 loan with a simple annual interest rate of 6 percent is equal to

A 100-year, $1,000 loan that pays a 6 percent simple annual interest rate pays a total amount of interest of

A rightward shift in the supply of loanable funds curve could be caused by

A fall in interest rates will cause long-term bond prices to

A bond has an annual coupon rate of 7 percent, a $1,000 face value, and ten years remaining until maturity. The bond currently sells for $1,138. The yield to maturity for this bond is __________ percent. (Note: This question requires a financial calculator.)

Assume that an investor pays $900 for a bond with a face value of $1,000. If the bond pays 10 percent interest annually, the current yield is equal to

If an investor pays $925 for a bond with a face value of $1,000 and annual payments, it follows that

If an investor pays $1,025 for a bond with a face value of $1,000 and annual payments, it follows that

The __________ is the interest rate that makes the sum of present values for all future payments equal to a security's purchase price.

If the inflation rate is expected to be 5 percent and nominal interest rate is 9 percent, then the real interest rate will be

Julia hen just purchased a $1,000 face value bond for $987. The bond pays $50 in interest every six months and matures in five years. The yield to maturity for this bond is __________ percent. (Note: This question requires a financial calculator.)

The coupon rate is equal to the

Which of these will cause the equilibrium interest rate to rise?

Lenders expecting lower inflation will

The return on an asset with a purchase price of $940 and a selling price of $900 and coupon payments of $100 is

Interest rates are determined by the supply of and demand for

To calculate the yield to maturity on a bond, it is necessary to know the

A $1,000, 7 percent deposit pays interest compounded monthly. After six months, the deposit balance is $__________.

A rise in interest rates will cause short-term bond prices to

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

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