Question 1

If a bond is sold before maturity, under what circumstance would the rate of return equal the yield when the bond was purchased?

Accepted Answer

The market yields are the same at the time of sale and purchase.

Question 2

What is the name of the relation between real and nominal interest rates?

Accepted Answer

The Fisher equation

Question 3

Write an equation for the Fisher equation identifying all the parts.

Accepted Answer

i_r = i_n - $\pi$ i_r - real interest rate i_n - nominal interest rate $\pi$-inflation (or expected inflation)

Question 4

A falling real interest rate means nominal rates are falling as well.

Accepted Answer

A) True 
 B)False

Question 5

A _____ is a type of perpetual bond issued by the British government.

Accepted Answer

A)  consol 
B)  money market bond 
C)  discount coupon 
D)  none of the above. 
A)  consol 
B)  money market bond 
C)  discount coupon 
D)  none of the above.

Question 6

The rate of return on a bond can be negative if market yields

Accepted Answer

A)  rise. 
B)  fall. 
C)  become negative. 
D)  Rates of return cannot be negative. 
A)  rise. 
B)  fall. 
C)  become negative. 
D)  Rates of return cannot be negative.

Question 7

Why do longer term bonds have greater interest rate risk?

Accepted Answer

Changes in yields ha

Question 8

Examples of debt instruments include bonds, IOUs, and simple loans.

Accepted Answer

A) True 
 B)False

Question 9

The current yield is the most accurate measure of the return on a bond.

Accepted Answer

A) True 
 B)False

Question 10

The relationship between real and nominal rates is called the

Accepted Answer

A)  inflation relation. 
B)  Fisher equation. 
C)  Friedman equation. 
D)  none of the above. 
A)  inflation relation. 
B)  Fisher equation. 
C)  Friedman equation. 
D)  none of the above.

Question 11

What is the difference between ex-ante and ex-post judgments?

Accepted Answer

Ex-ante judgments ar

Question 12

Discounts bonds and zero coupon bonds are the same type of debt instrument.

Accepted Answer

A) True 
 B)False

Question 13

The present value of a future payment is always greater than the payment.

Accepted Answer

A) True 
 B)False

Question 14

A two-year coupon bond has a face value of $1,000, a coupon rate of 5% and a yield to maturity of 2%. What is the price of the bond?

Accepted Answer

A)  $944.21. 
B)  $1,000. 
C)  $1,058.25. 
D)  $1,078.43. 
A)  $944.21. 
B)  $1,000. 
C)  $1,058.25. 
D)  $1,078.43.

Question 15

Your uncle Albert gives you a savings bond that pays $500 four years from now. If the relevant interest rate for you is 2%, what is the present value of the bond?

Accepted Answer

A)  $461.92. 
B)  $490.19. 
C)  $510.00. 
D)  $541.21. 
A)  $461.92. 
B)  $490.19. 
C)  $510.00. 
D)  $541.21.

Question 16

Find the present value of a payment of $50 four years from now if the relevant interest rate is 6%.

Accepted Answer

The answer of Find the present value of a payment...

Question 17

The price of a coupon bond is inversely related to

Accepted Answer

A)  the face value. 
B)  the coupon rate. 
C)  both of the above. 
D)  neither of the above. 
A)  the face value. 
B)  the coupon rate. 
C)  both of the above. 
D)  neither of the above.

Question 18

If you had a fixed-payment loan of $500,000 for thirty years at 6%, how much of your payment is principal in year 10?

Accepted Answer

A)  $520.60 
B)  $752.25 
C)  none; the principal isn't paid until year 30 
D)  none of the above 
A)  $520.60 
B)  $752.25 
C)  none; the principal isn't paid until year 30 
D)  none of the above

Question 19

A _____ is the type of loan where the borrower repays the principal and interest at the end of the loan.

Accepted Answer

A)  simple loan 
B)  fixed-payment loan 
C)  principled interest loan 
D)  none of the above. 
A)  simple loan 
B)  fixed-payment loan 
C)  principled interest loan 
D)  none of the above.

Question 20

Write the equation relating the present value and future value of a payment, identifying all the parts.

Accepted Answer

PV = FV/(1+i)ⁿ i - in

Exam 4: Interest Rates

If a bond is sold before maturity, under what circumstance would the rate of return equal the yield when the bond was purchased?

What is the name of the relation between real and nominal interest rates?

Write an equation for the Fisher equation identifying all the parts.

A falling real interest rate means nominal rates are falling as well.

A _____ is a type of perpetual bond issued by the British government.

The rate of return on a bond can be negative if market yields

Why do longer term bonds have greater interest rate risk?

Examples of debt instruments include bonds, IOUs, and simple loans.

The current yield is the most accurate measure of the return on a bond.

The relationship between real and nominal rates is called the

What is the difference between ex-ante and ex-post judgments?

Discounts bonds and zero coupon bonds are the same type of debt instrument.

The present value of a future payment is always greater than the payment.

A two-year coupon bond has a face value of $1,000, a coupon rate of 5% and a yield to maturity of 2%. What is the price of the bond?

Your uncle Albert gives you a savings bond that pays $500 four years from now. If the relevant interest rate for you is 2%, what is the present value of the bond?

Find the present value of a payment of $50 four years from now if the relevant interest rate is 6%.

The price of a coupon bond is inversely related to

If you had a fixed-payment loan of $500,000 for thirty years at 6%, how much of your payment is principal in year 10?

A _____ is the type of loan where the borrower repays the principal and interest at the end of the loan.

Write the equation relating the present value and future value of a payment, identifying all the parts.

The Financial System

Money

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Financial Structure, Transaction Costs, and Asymmetric Information

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Is-Lm in Action

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

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