Question 1

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

Accepted Answer

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

Question 2

All else equal, when interest rates ________, the duration of a coupon bond ________.

Accepted Answer

A)  rise; falls 
B)  rise; increases 
C)  falls; falls 
D)  falls; does not change 
A)  rise; falls 
B)  rise; increases 
C)  falls; falls 
D)  falls; does not change

Question 3

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 4

Duration is

Accepted Answer

A)  an asset's term to maturity. 
B)  the time until the next interest payment for a coupon bond. 
C)  the average lifetime of a debt security's stream of payments. 
D)  the time between interest payments for a coupon bond. 
A)  an asset's term to maturity. 
B)  the time until the next interest payment for a coupon bond. 
C)  the average lifetime of a debt security's stream of payments. 
D)  the time between interest payments for a coupon bond.

Question 5

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.

Question 6

Which of the following are true for discount bonds?

Accepted Answer

A)  A discount bond is bought at par. 
B)  The purchaser receives the face value of the bond at the maturity date. 
C)  U.S. Treasury bonds and notes are examples of discount bonds. 
D)  The purchaser receives the par value at maturity plus any capital gains. 
A)  A discount bond is bought at par. 
B)  The purchaser receives the face value of the bond at the maturity date. 
C)  U.S. Treasury bonds and notes are examples of discount bonds. 
D)  The purchaser receives the par value at maturity plus any capital gains.

Question 7

Comparing a discount bond and a coupon bond with the same maturity,

Accepted Answer

A)  the coupon bond has the greater effective maturity. 
B)  the discount bond has the greater effective maturity. 
C)  the effective maturity cannot be calculated for a coupon bond. 
D)  the effective maturity cannot be calculated for a discount bond. 
A)  the coupon bond has the greater effective maturity. 
B)  the discount bond has the greater effective maturity. 
C)  the effective maturity cannot be calculated for a coupon bond. 
D)  the effective maturity cannot be calculated for a discount bond.

Question 8

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 9

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called 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 10

All else equal, the ________ the coupon rate on a bond, the ________ the bond's duration.

Accepted Answer

A)  higher; longer 
B)  higher; shorter 
C)  lower; shorter 
D)  greater; longer 
A)  higher; longer 
B)  higher; shorter 
C)  lower; shorter 
D)  greater; longer

Question 11

If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio?

Accepted Answer

A)  12 years 
B)  7 years 
C)  6 years 
D)  5 years 
A)  12 years 
B)  7 years 
C)  6 years 
D)  5 years

Question 12

There is ________ for any bond whose time to maturity matches the holding period.

Accepted Answer

A)  no interest-rate risk 
B)  a large interest-rate risk 
C)  rate-of-return risk 
D)  yield-to-maturity risk 
A)  no interest-rate risk 
B)  a large interest-rate risk 
C)  rate-of-return risk 
D)  yield-to-maturity risk

Question 13

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

Accepted Answer

A)  long-term; long-term 
B)  long-term; short-term 
C)  short-term; long-term 
D)  short-term; short-term 
A)  long-term; long-term 
B)  long-term; short-term 
C)  short-term; long-term 
D)  short-term; short-term

Question 14

In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because

Accepted Answer

A)  of the high inflation rate. 
B)  these bills sold at a discount from face value. 
C)  the bills were denominated in small amounts and could be stored electronically. 
D)  the bills were denominated in large amounts and could be stored electronically. 
A)  of the high inflation rate. 
B)  these bills sold at a discount from face value. 
C)  the bills were denominated in small amounts and could be stored electronically. 
D)  the bills were denominated in large amounts and could be stored electronically.

Question 15

The price of a consol equals the coupon payment

Accepted Answer

A)  times the interest rate. 
B)  plus the interest rate. 
C)  minus the interest rate. 
D)  divided by the interest rate. 
A)  times the interest rate. 
B)  plus the interest rate. 
C)  minus the interest rate. 
D)  divided by the interest rate.

Question 16

When talking about a coupon bond, face value and ________ mean the same thing.

Accepted Answer

A)  par value 
B)  coupon value 
C)  amortized value 
D)  discount value 
A)  par value 
B)  coupon value 
C)  amortized value 
D)  discount value

Question 17

Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is

Accepted Answer

A)  3 percent. 
B)  5 percent. 
C)  8 percent. 
D)  11 percent. 
A)  3 percent. 
B)  5 percent. 
C)  8 percent. 
D)  11 percent.

Question 18

The ________ of a coupon bond and the yield to maturity are inversely related.

Accepted Answer

A)  price 
B)  par value 
C)  maturity date 
D)  term 
A)  price 
B)  par value 
C)  maturity date 
D)  term

Question 19

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

Accepted Answer

A)  5 percent. 
B)  8 percent. 
C)  10 percent. 
D)  40 percent. 
A)  5 percent. 
B)  8 percent. 
C)  10 percent. 
D)  40 percent.

Question 20

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.

Exam 4: Understanding Interest Rates

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

All else equal, when interest rates ________, the duration of a coupon bond ________.

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

Duration is

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

Which of the following are true for discount bonds?

Comparing a discount bond and a coupon bond with the same maturity,

The duration of a coupon bond increases

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

All else equal, the ________ the coupon rate on a bond, the ________ the bond's duration.

If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio?

There is ________ for any bond whose time to maturity matches the holding period.

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because

The price of a consol equals the coupon payment

When talking about a coupon bond, face value and ________ mean the same thing.

Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is

The ________ of a coupon bond and the yield to maturity are inversely related.

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

Which of the following are true for a coupon bond?

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

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

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

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Filters

All else equal, when interest rates , the duration of a coupon bond .

All else equal, the the coupon rate on a bond, the the bond's duration.

Prices and returns for bonds are more volatile than those for bonds, everything else held constant.