Question 1

Which of the following $1,000 face-value securities has the lowest yield to maturity?

Accepted Answer

A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 15 percent coupon bond selling for $1,000 
D) A 15 percent coupon bond selling for $900 
A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 15 percent coupon bond selling for $1,000 
D) A 15 percent coupon bond selling for $900

Question 2

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

Accepted Answer

A) 2.5 percent. 
B) 5 percent. 
C) 7.5 percent. 
D) 10 percent. 
A) 2.5 percent. 
B) 5 percent. 
C) 7.5 percent. 
D) 10 percent.

Question 3

If $22,050 is the amount payable in two years for a $20,000 simple loan made today,the interest rate is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 22 percent. 
D) 25 percent. 
A) 5 percent. 
B) 10 percent. 
C) 22 percent. 
D) 25 percent.

Question 4

The nominal interest rate minus the expected rate of inflation

Accepted Answer

A) defines the real interest rate. 
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. 
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. 
D) defines the discount rate. 
A) defines the real interest rate. 
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. 
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. 
D) defines the discount rate.

Question 5

When I purchase a 10 percent coupon bond,I calculate a yield to maturity of 8 percent.If I hold this bond to maturity,then my return on this asset is

Accepted Answer

A) 10 percent. 
B) 8 percent. 
C) 12 percent. 
D) there is not enough information to determine the return. 
A) 10 percent. 
B) 8 percent. 
C) 12 percent. 
D) there is not enough information to determine the return.

Question 6

Which of the following $1,000 face-value securities has the highest yield to maturity?

Accepted Answer

A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 12 percent coupon bond selling for $1,000 
D) A 12 percent coupon bond selling for $1,100 
A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 12 percent coupon bond selling for $1,000 
D) A 12 percent coupon bond selling for $1,100

Question 7

In which of the following situations would you prefer to be the lender?

Accepted Answer

A) The interest rate is 9 percent and the expected inflation rate is 7 percent. 
B) The interest rate is 4 percent and the expected inflation rate is 1 percent. 
C) The interest rate is 13 percent and the expected inflation rate is 15 percent. 
D) The interest rate is 25 percent and the expected inflation rate is 50 percent. 
A) The interest rate is 9 percent and the expected inflation rate is 7 percent. 
B) The interest rate is 4 percent and the expected inflation rate is 1 percent. 
C) The interest rate is 13 percent and the expected inflation rate is 15 percent. 
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

Question 8

The riskiness of an asset's returns due to changes in interest rates is

Accepted Answer

A) exchange-rate risk. 
B) price risk. 
C) asset risk. 
D) interest-rate risk. 
A) exchange-rate risk. 
B) price risk. 
C) asset risk. 
D) interest-rate risk.

Question 9

If a security pays $55 in one year and $133 in three years,its present value is $150 if the interest rate is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 12.5 percent. 
D) 15 percent. 
A) 5 percent. 
B) 10 percent. 
C) 12.5 percent. 
D) 15 percent.

Question 10

Which of the following are true for a coupon bond?

Accepted Answer

A) When the coupon bond is priced at its face value,the yield to maturity equals the coupon rate. 
B) The price of a coupon bond and the yield to maturity are positively related. 
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. 
D) The yield is less than the coupon rate when the bond price is below the par value. 
A) When the coupon bond is priced at its face value,the yield to maturity equals the coupon rate. 
B) The price of a coupon bond and the yield to maturity are positively related. 
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. 
D) The yield is less than the coupon rate when the bond price is below the par value.

Question 11

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

Accepted Answer

A) -3 percent. 
B) -2 percent. 
C) 3 percent. 
D) 7 percent. 
A) -3 percent. 
B) -2 percent. 
C) 3 percent. 
D) 7 percent.

Question 12

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds.It is called the ________ when approximating the yield for a coupon bond.

Accepted Answer

A) current yield 
B) discount yield 
C) future yield 
D) star yield 
A) current yield 
B) discount yield 
C) future yield 
D) star yield

Question 13

The duration of a coupon bond increases

Accepted Answer

A) the longer is the bond's term to maturity. 
B) when interest rates increase. 
C) the higher the coupon rate on the bond. 
D) the higher the bond price. 
A) the longer is the bond's term to maturity. 
B) when interest rates increase. 
C) the higher the coupon rate on the bond. 
D) the higher the bond price.

Question 14

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

Accepted Answer

A) sum 
B) difference 
C) multiple 
D) log 
A) sum 
B) difference 
C) multiple 
D) log

Question 15

If a $1000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

Accepted Answer

A) $37.50. 
B) $3.75. 
C) $375.00. 
D) $13.75 
A) $37.50. 
B) $3.75. 
C) $375.00. 
D) $13.75

Question 16

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

Accepted Answer

A) simple loan. 
B) fixed-payment loan. 
C) coupon bond. 
D) discount bond. 
A) simple loan. 
B) fixed-payment loan. 
C) coupon bond. 
D) discount bond.

Question 17

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Accepted Answer

A) Fisher equation 
B) Keynesian equation 
C) Monetarist equation 
D) Marshall equation 
A) Fisher equation 
B) Keynesian equation 
C) Monetarist equation 
D) Marshall equation

Question 18

Which of the following bonds would you prefer to be buying?

Accepted Answer

A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 
B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 
C) A $10,000 face-value security with a 9 percent coupon selling for $10,000 
D) A $10,000 face-value security with a 10 percent coupon selling for $10,000 
A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 
B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 
C) A $10,000 face-value security with a 9 percent coupon selling for $10,000 
D) A $10,000 face-value security with a 10 percent coupon selling for $10,000

Question 19

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

Accepted Answer

A) simple loan. 
B) fixed-payment loan. 
C) coupon bond. 
D) discount bond. 
A) simple loan. 
B) fixed-payment loan. 
C) coupon bond. 
D) discount bond.

Question 20

A coupon bond that has no maturity date and no repayment of principal is called a

Accepted Answer

A) consol. 
B) cabinet. 
C) Treasury bill. 
D) Treasury note. 
A) consol. 
B) cabinet. 
C) Treasury bill. 
D) Treasury note.

Exam 4: Understanding Interest Rates

Which of the following $1,000 face-value securities has the lowest yield to maturity?

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

If $22,050 is the amount payable in two years for a $20,000 simple loan made today,the interest rate is

The nominal interest rate minus the expected rate of inflation

When I purchase a 10 percent coupon bond,I calculate a yield to maturity of 8 percent.If I hold this bond to maturity,then my return on this asset is

Which of the following $1,000 face-value securities has the highest yield to maturity?

In which of the following situations would you prefer to be the lender?

The riskiness of an asset's returns due to changes in interest rates is

If a security pays $55 in one year and $133 in three years,its present value is $150 if the interest rate is

Which of the following are true for a coupon bond?

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds.It is called the ________ when approximating the yield for a coupon bond.

The duration of a coupon bond increases

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

If a $1000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Which of the following bonds would you prefer to be buying?

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

A coupon bond that has no maturity date and no repayment of principal is called a

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

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