Question 1

A __________ yield to maturity implies a __________ bond price.

Accepted Answer

A)  lower; lower 
B)  higher; lower 
C)  higher; higher 
D)  None of the above. 
A)  lower; lower 
B)  higher; lower 
C)  higher; higher 
D)  None of the above.

Question 2

Long-term bonds are __________ than short-term bonds, and long-term bonds often have a __________ yield than short-term bonds.

Accepted Answer

A)  less risky; lower 
B)  more risky; lower 
C)  less risky; higher 
D)  more risky; higher 
A)  less risky; lower 
B)  more risky; lower 
C)  less risky; higher 
D)  more risky; higher

Question 3

Buddy Bolly just received his annual bank statement. One year ago, Buddy deposited $10,000 in a savings account. Today, his balance is $10,509.45. Buddy's savings account interest is compounded quarterly. Buddy received an annualized interest rate of __________ percent.

Accepted Answer

A)  6 
B)  5 
C)  4 
D)  3 
A)  6 
B)  5 
C)  4 
D)  3

Question 4

__________ will cause a movement up along the demand for loanable funds curve.

Accepted Answer

A)  A rise in interest rates 
B)  A decline in interest rates 
C)  An increase in business borrowing 
D)  A decrease in business borrowing 
A)  A rise in interest rates 
B)  A decline in interest rates 
C)  An increase in business borrowing 
D)  A decrease in business borrowing

Question 5

The yield to maturity of a zero-coupon bond is determined by the bo face value and its

Accepted Answer

A)  purchase price. 
B)  current yield. 
C)  coupon rate. 
D)  real rate. 
A)  purchase price. 
B)  current yield. 
C)  coupon rate. 
D)  real rate.

Question 6

The present value of an asset can be found by __________ the future value.

Accepted Answer

A)  stripping 
B)  discounting 
C)  compounding 
D)  annualizing 
A)  stripping 
B)  discounting 
C)  compounding 
D)  annualizing

Question 7

Pat Bosky just paid $843 to repay the principal and interest for a six-month, $800 loan. Pat paid a simple annual interest rate of __________ percent.

Accepted Answer

A)  4.3 
B)  8.6 
C)  10.8 
D)  16.8 
A)  4.3 
B)  8.6 
C)  10.8 
D)  16.8

Question 8

The ex ante real interest rate is __________, while the ex post real rate is __________.

Accepted Answer

A)  the nominal interest rate minus expected inflation; the nominal interest rate minus actual inflation 
B)  the nominal interest rate minus actual inflation; the nominal interest rate minus expected inflation 
C)  the real interest rate plus expected inflation; the real interest rate plus actual inflation 
D)  the real interest rate plus actual inflation; the real interest rate plus expected inflation 
A)  the nominal interest rate minus expected inflation; the nominal interest rate minus actual inflation 
B)  the nominal interest rate minus actual inflation; the nominal interest rate minus expected inflation 
C)  the real interest rate plus expected inflation; the real interest rate plus actual inflation 
D)  the real interest rate plus actual inflation; the real interest rate plus expected inflation

Question 9

The impact of capital gains and losses is reflected in the

Accepted Answer

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

Question 10

The equilibrium interest rate rises when

Accepted Answer

A)  inflationary expectations increase. 
B)  the economy enters a recession. 
C)  the supply of credit increases. 
D)  the demand for credit decreases. 
A)  inflationary expectations increase. 
B)  the economy enters a recession. 
C)  the supply of credit increases. 
D)  the demand for credit decreases.

Question 11

If an investor pays $1,025 for a bond with a face value of $1,000, it follows that the current yield is __________ than the coupon rate, and the investor will realize a capital __________ if he holds the bond until maturity.

Accepted Answer

A)  greater; gain 
B)  less; gain 
C)  greater; loss 
D)  less; loss 
A)  greater; gain 
B)  less; gain 
C)  greater; loss 
D)  less; loss

Question 12

A lottery winner receives $20 million in equal payments spread out over 20 years. The present value of the winnings is

Accepted Answer

A)  equal to $20 million. 
B)  greater than $20 million. 
C)  less than $20 million. 
D)  either greater than or less than $20 million, depending on the discount rate used for the calculation. 
A)  equal to $20 million. 
B)  greater than $20 million. 
C)  less than $20 million. 
D)  either greater than or less than $20 million, depending on the discount rate used for the calculation.

Question 13

At the beginning of the year an investor pays $1,100 for a bond with a face value of $1,000. The bond pays a coupon payment of $60, and the investor sells it for $1,150 at the end of the year. The return is

Accepted Answer

A)  5.5 percent. 
B)  6.0 percent. 
C)  10.0 percent. 
D)  10.5 percent. 
A)  5.5 percent. 
B)  6.0 percent. 
C)  10.0 percent. 
D)  10.5 percent.

Question 14

The present value of $900 to be received in three years, with an annual interest rate of 10 percent, compounded annually, is equal to $__________.

Accepted Answer

A)  772 
B)  676 
C)  816 
D)  810 
A)  772 
B)  676 
C)  816 
D)  810

Exam 4: Interest Rate Measurement and Behavior

A __________ yield to maturity implies a __________ bond price.

Long-term bonds are __________ than short-term bonds, and long-term bonds often have a __________ yield than short-term bonds.

Buddy Bolly just received his annual bank statement. One year ago, Buddy deposited $10,000 in a savings account. Today, his balance is $10,509.45. Buddy's savings account interest is compounded quarterly. Buddy received an annualized interest rate of __________ percent.

__________ will cause a movement up along the demand for loanable funds curve.

The yield to maturity of a zero-coupon bond is determined by the bo face value and its

The present value of an asset can be found by __________ the future value.

Pat Bosky just paid $843 to repay the principal and interest for a six-month, $800 loan. Pat paid a simple annual interest rate of __________ percent.

The ex ante real interest rate is __________, while the ex post real rate is __________.

The impact of capital gains and losses is reflected in the

The equilibrium interest rate rises when

If an investor pays $1,025 for a bond with a face value of $1,000, it follows that the current yield is __________ than the coupon rate, and the investor will realize a capital __________ if he holds the bond until maturity.

A lottery winner receives $20 million in equal payments spread out over 20 years. The present value of the winnings is

At the beginning of the year an investor pays $1,100 for a bond with a face value of $1,000. The bond pays a coupon payment of $60, and the investor sells it for $1,150 at the end of the year. The return is

The present value of $900 to be received in three years, with an annual interest rate of 10 percent, compounded annually, is equal 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

Filters

A yield to maturity implies a bond price.

Long-term bonds are than short-term bonds, and long-term bonds often have a yield than short-term bonds.

The ex ante real interest rate is , while the ex post real rate is .

If an investor pays $1,025 for a bond with a face value of $1,000, it follows that the current yield is than the coupon rate, and the investor will realize a capital if he holds the bond until maturity.