Question 1

Prices and returns for ________ bonds are more volatile than those for ________ bonds.

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 2

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 3

The ________ interest rate is adjusted for expected changes in the price level.

Accepted Answer

A)  ex ante real 
B)  ex post real 
C)  ex post nominal 
D)  ex ante nominal 
A)  ex ante real 
B)  ex post real 
C)  ex post nominal 
D)  ex ante nominal

Question 4

The ________ is the final amount that will be paid to the holder of a coupon bond.

Accepted Answer

A)  discount value 
B)  coupon value 
C)  face value 
D)  present value 
A)  discount value 
B)  coupon value 
C)  face value 
D)  present value

Question 5

Which of the following $1000 face-value securities has the lowest yield to maturity?

Accepted Answer

A)  A 5 percent coupon bond selling for $1000 
B)  A 10 percent coupon bond selling for $1000 
C)  A 15 percent coupon bond selling for $1000 
D)  A 15 percent coupon bond selling for $900 
A)  A 5 percent coupon bond selling for $1000 
B)  A 10 percent coupon bond selling for $1000 
C)  A 15 percent coupon bond selling for $1000 
D)  A 15 percent coupon bond selling for $900

Question 6

Economists consider the ________ to be the most accurate measure of interest rates.

Accepted Answer

A)  simple interest rate 
B)  current yield 
C)  yield to maturity 
D)  real interest rate 
A)  simple interest rate 
B)  current yield 
C)  yield to maturity 
D)  real interest rate

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

Which of the following is generally true of bonds?

Accepted Answer

A)  The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. 
B)  A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. 
C)  The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. 
D)  Prices and returns for short-term bonds are more volatile than those for longer-term bonds. 
A)  The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. 
B)  A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. 
C)  The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. 
D)  Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Question 9

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is ________.

Accepted Answer

A)  2 percent 
B)  8 percent 
C)  10 percent 
D)  12 percent 
A)  2 percent 
B)  8 percent 
C)  10 percent 
D)  12 percent

Question 10

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.

Accepted Answer

A)  coupon bond; discount 
B)  discount bond; discount 
C)  coupon bond; face 
D)  discount bond; face 
A)  coupon bond; discount 
B)  discount bond; discount 
C)  coupon bond; face 
D)  discount bond; face

Question 11

Examples of discount bonds include ________.

Accepted Answer

A)  Treasury bills 
B)  corporate bonds 
C)  coupon bonds 
D)  municipal bonds 
A)  Treasury bills 
B)  corporate bonds 
C)  coupon bonds 
D)  municipal bonds

Question 12

The interest rate that describes how well a lender has done in real terms after the fact is called the ________.

Accepted Answer

A)  ex post real interest rate 
B)  ex ante real interest rate 
C)  ex post nominal interest rate 
D)  ex ante nominal interest rate 
A)  ex post real interest rate 
B)  ex ante real interest rate 
C)  ex post nominal interest rate 
D)  ex ante nominal interest rate

Question 13

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

Accepted Answer

A)  A $10000 face-value security with a 10 percent coupon selling for $9000 
B)  A $10000 face-value security with a 7 percent coupon selling for $10000 
C)  A $10000 face-value security with a 9 percent coupon selling for $10000 
D)  A $10000 face-value security with a 10 percent coupon selling for $10000 
A)  A $10000 face-value security with a 10 percent coupon selling for $9000 
B)  A $10000 face-value security with a 7 percent coupon selling for $10000 
C)  A $10000 face-value security with a 9 percent coupon selling for $10000 
D)  A $10000 face-value security with a 10 percent coupon selling for $10000

Question 14

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the ________.

Accepted Answer

A)  initial price 
B)  face value 
C)  interest rate 
D)  coupon rate 
A)  initial price 
B)  face value 
C)  interest rate 
D)  coupon rate

Question 15

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

Accepted Answer

A)  positively; rises; rises 
B)  negatively; falls; falls 
C)  positively; rises; falls 
D)  negatively; rises; falls 
A)  positively; rises; rises 
B)  negatively; falls; falls 
C)  positively; rises; falls 
D)  negatively; rises; falls

Question 16

For simple loans, the simple interest rate is ________ the yield to maturity.

Accepted Answer

A)  greater than 
B)  less than 
C)  equal to 
D)  not comparable to 
A)  greater than 
B)  less than 
C)  equal to 
D)  not comparable to

Question 17

Explain the Fisher equation. Construct a numerical example demonstrating that, depending on the expected rate of inflation, a lower nominal rate may still reflect a higher real cost of borrowing. Explain your example thoroughly.

Accepted Answer

The answer should list the equation that

Question 18

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 19

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

Question 20

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

Exam 4: The Meaning of Interest Rates

Prices and returns for ________ bonds are more volatile than those for ________ bonds.

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 ________ interest rate is adjusted for expected changes in the price level.

The ________ is the final amount that will be paid to the holder of a coupon bond.

Which of the following $1000 face-value securities has the lowest yield to maturity?

Economists consider the ________ to be the most accurate measure of interest rates.

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

Which of the following is generally true of bonds?

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is ________.

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.

Examples of discount bonds include ________.

The interest rate that describes how well a lender has done in real terms after the fact is called the ________.

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

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the ________.

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

For simple loans, the simple interest rate is ________ the yield to maturity.

Explain the Fisher equation. Construct a numerical example demonstrating that, depending on the expected rate of inflation, a lower nominal rate may still reflect a higher real cost of borrowing. Explain your example thoroughly.

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

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

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

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Filters

Prices and returns for bonds are more volatile than those for bonds.

A is bought at a price below its face value, and the value is repaid at the maturity date.

The price of a coupon bond and the yield to maturity are related; that is, as the yield to maturity , the price of the bond .