Question 1

Issuers of coupon bonds

Accepted Answer

A)  make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond. 
B)  make a single payment of interest and principal. 
C)  make multiple payments of principal, but a single payment of interest. 
D)  make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond. 
A)  make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond. 
B)  make a single payment of interest and principal. 
C)  make multiple payments of principal, but a single payment of interest. 
D)  make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond.

Question 2

The bid price for a bond is

Accepted Answer

A)  the minimum price that you are allowed to bid for a bond that is being auctioned by the government. 
B)  the maximum price that you are allowed to bid for a bond that is being auctioned by the government. 
C)  the price that you will receive from a securities dealer if you sell the bond. 
D)  the price that you must pay a securities dealer to purchase a bond. 
A)  the minimum price that you are allowed to bid for a bond that is being auctioned by the government. 
B)  the maximum price that you are allowed to bid for a bond that is being auctioned by the government. 
C)  the price that you will receive from a securities dealer if you sell the bond. 
D)  the price that you must pay a securities dealer to purchase a bond.

Question 3

A simple loan involves

Accepted Answer

A)  interest payments from the borrower to the lender periodically during the life of the loan. 
B)  no payment of interest by the borrower to the lender. 
C)  payment of interest by the borrower to the lender only at the time the loan matures. 
D)  payment only of principal by the borrower to the lender at maturity. 
A)  interest payments from the borrower to the lender periodically during the life of the loan. 
B)  no payment of interest by the borrower to the lender. 
C)  payment of interest by the borrower to the lender only at the time the loan matures. 
D)  payment only of principal by the borrower to the lender at maturity.

Question 4

Why isn't the current yield a good indicator of holding a bond?

Accepted Answer

A)  It doesn't account for the yield to maturity. 
B)  It doesn't account for capital gains or losses. 
C)  It doesn't account for the coupon. 
D)  It assumes that the current price equals its par value. 
A)  It doesn't account for the yield to maturity. 
B)  It doesn't account for capital gains or losses. 
C)  It doesn't account for the coupon. 
D)  It assumes that the current price equals its par value.

Question 5

Suppose you put $500 in your savings account and earn 4% interest per year.How much will you have in your account after two years? Be sure to round off to the nearest cent.

Accepted Answer

$500 × 1.0

Question 6

Which of the following is NOT a discount bond?

Accepted Answer

A)  a U.S. savings bond 
B)  a U.S. Treasury bill 
C)  a U.S. Treasury note 
D)  a zero-coupon bond 
A)  a U.S. savings bond 
B)  a U.S. Treasury bill 
C)  a U.S. Treasury note 
D)  a zero-coupon bond

Question 7

How are TIPS adjusted for inflation?

Accepted Answer

A)  The interest rate is adjusted for inflation during each period. 
B)  The principal is adjusted once the bond reaches maturity. 
C)  The principal is adjusted for inflation each period. 
D)  The interest rate is adjusted once the bond reaches maturity. 
A)  The interest rate is adjusted for inflation during each period. 
B)  The principal is adjusted once the bond reaches maturity. 
C)  The principal is adjusted for inflation each period. 
D)  The interest rate is adjusted once the bond reaches maturity.

Question 8

The current yield is equal to

Accepted Answer

A)  the coupon divided by the market price of the bond. 
B)  the yield to maturity, if the bond is a coupon bond. 
C)  the coupon divided by the par value of the bond. 
D)  the market price of the bond divided by its par value. 
A)  the coupon divided by the market price of the bond. 
B)  the yield to maturity, if the bond is a coupon bond. 
C)  the coupon divided by the par value of the bond. 
D)  the market price of the bond divided by its par value.

Question 9

Suppose a bond has a coupon of $75,face value of $1,000,and current price of $1,100.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Accepted Answer

The coupon rate is $

Question 10

Which group is hurt by inflation being less than expected?

Accepted Answer

A)  holders of TIPS 
B)  lenders of fixed-rate mortgages 
C)  borrowers with fixed-rate mortgages 
D)  all of the above 
A)  holders of TIPS 
B)  lenders of fixed-rate mortgages 
C)  borrowers with fixed-rate mortgages 
D)  all of the above

Question 11

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant.At the end of one year Harry's Restaurant will pay First National

Accepted Answer

A)  $934.58. 
B)  $1,007. 
C)  $1,070. 
D)  $1,700. 
A)  $934.58. 
B)  $1,007. 
C)  $1,070. 
D)  $1,700.

Question 12

Compounding refers to

Accepted Answer

A)  the calculation of interest rates after the compounding effect of taxes has been allowed for. 
B)  the paying back of both interest and principal during the life of a fixed-payment loan. 
C)  the process of earning interest on both the interest and the principal of an investment. 
D)  the increased value of an investment that arises from the payment of periodic interest. 
A)  the calculation of interest rates after the compounding effect of taxes has been allowed for. 
B)  the paying back of both interest and principal during the life of a fixed-payment loan. 
C)  the process of earning interest on both the interest and the principal of an investment. 
D)  the increased value of an investment that arises from the payment of periodic interest.

Question 13

Explain the process by which prices of securities adjust so as to eliminate arbitrage profits.

Accepted Answer

In competing to buy securities

Question 14

Interest-rate risk can best be characterized as the risk that

Accepted Answer

A)  you could have earned a higher interest rate if you waited to purchase a bond. 
B)  fluctuations in the price of a financial asset in response to changes in market interest rates. 
C)  you could have gotten a lower interest rate if you waited to lock in a mortgage. 
D)  short-term interest rates may exceed long-term interest rates. 
A)  you could have earned a higher interest rate if you waited to purchase a bond. 
B)  fluctuations in the price of a financial asset in response to changes in market interest rates. 
C)  you could have gotten a lower interest rate if you waited to lock in a mortgage. 
D)  short-term interest rates may exceed long-term interest rates.

Question 15

Suppose a coupon bond with a par value of $1,000 is currently priced at $950 and has a coupon of $40.Which of the following is TRUE?

Accepted Answer

A) current yield > coupon rate B) current yield < coupon rate C) Coupon rate has risen. D) Coupon rate has declined. A) current yield > coupon rate B) current yield < coupon rate C) Coupon rate has risen. D) Coupon rate has declined.

Question 16

For a specific change in the yield to maturity

Accepted Answer

A)  the shorter the time until a bond matures, the greater will be the change in its price. 
B)  the longer the time until a bond matures, the greater will be the change in its price. 
C)  the longer the time until a bond matures, the greater will be the change in its par value. 
D)  the shorter the time until a bond matures, the greater will be the change in its coupon rate. 
A)  the shorter the time until a bond matures, the greater will be the change in its price. 
B)  the longer the time until a bond matures, the greater will be the change in its price. 
C)  the longer the time until a bond matures, the greater will be the change in its par value. 
D)  the shorter the time until a bond matures, the greater will be the change in its coupon rate.

Question 17

In comparing the yield to maturity on a Treasury bill with the yield on a discount basis on the same bill,we can say that the yield to maturity

Accepted Answer

A)  will always be greater than the yield on a discount basis. 
B)  will always be less than the yield on a discount basis. 
C)  will always be equal to the yield on a discount basis, provided the holding period is the same as the number of years to maturity. 
D)  rises whenever the yield on a discount basis falls. 
A)  will always be greater than the yield on a discount basis. 
B)  will always be less than the yield on a discount basis. 
C)  will always be equal to the yield on a discount basis, provided the holding period is the same as the number of years to maturity. 
D)  rises whenever the yield on a discount basis falls.

Question 18

If the current price of a bond is greater than its face value

Accepted Answer

A)  an investor will receive a capital gain by holding the bond until maturity. 
B)  the yield to maturity must be less than the coupon rate. 
C)  the coupon rate must be less than the current yield. 
D)  the coupon rate must be equal to the current yield. 
A)  an investor will receive a capital gain by holding the bond until maturity. 
B)  the yield to maturity must be less than the coupon rate. 
C)  the coupon rate must be less than the current yield. 
D)  the coupon rate must be equal to the current yield.

Question 19

What are three reasons that banks charge interest on loans?

Accepted Answer

Banks charge interest on loans

Question 20

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1,400 which has payments of $500 per year?

Accepted Answer

A)  $1,400 = $500/(1 + i) + $500/(1 + i)2 + $500/(1 + i)3 
B)  $1,400 = $500/(1 + i)3 
C)  i = (1,400-500)/1,400 
D)  $1,400 = $500/(1 + i) + $500/(1 + i)2 + $500(1 + i)3 + 1,400/(1 + i)3 
A)  $1,400 = $500/(1 + i) + $500/(1 + i)2 + $500/(1 + i)3 
B)  $1,400 = $500/(1 + i)3 
C)  i = (1,400-500)/1,400 
D)  $1,400 = $500/(1 + i) + $500/(1 + i)2 + $500(1 + i)3 + 1,400/(1 + i)3

Issuers of coupon bonds

The bid price for a bond is

A simple loan involves

Why isn't the current yield a good indicator of holding a bond?

Suppose you put $500 in your savings account and earn 4% interest per year.How much will you have in your account after two years? Be sure to round off to the nearest cent.

Which of the following is NOT a discount bond?

How are TIPS adjusted for inflation?

The current yield is equal to

Suppose a bond has a coupon of $75,face value of $1,000,and current price of $1,100.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Which group is hurt by inflation being less than expected?

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant.At the end of one year Harry's Restaurant will pay First National

Compounding refers to

Explain the process by which prices of securities adjust so as to eliminate arbitrage profits.

Interest-rate risk can best be characterized as the risk that

Suppose a coupon bond with a par value of $1,000 is currently priced at $950 and has a coupon of $40.Which of the following is TRUE?

For a specific change in the yield to maturity

In comparing the yield to maturity on a Treasury bill with the yield on a discount basis on the same bill,we can say that the yield to maturity

If the current price of a bond is greater than its face value

What are three reasons that banks charge interest on loans?

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1,400 which has payments of $500 per year?

Introducing Money and the Financial System

Money and the Payments System

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 3: Interest Rates and Rates of Return

Issuers of coupon bonds

The bid price for a bond is

A simple loan involves

Why isn't the current yield a good indicator of holding a bond?

Suppose you put $500 in your savings account and earn 4% interest per year.How much will you have in your account after two years? Be sure to round off to the nearest cent.

Which of the following is NOT a discount bond?

How are TIPS adjusted for inflation?

The current yield is equal to

Suppose a bond has a coupon of $75,face value of $1,000,and current price of $1,100.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Which group is hurt by inflation being less than expected?

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant.At the end of one year Harry's Restaurant will pay First National

Compounding refers to

Explain the process by which prices of securities adjust so as to eliminate arbitrage profits.

Interest-rate risk can best be characterized as the risk that

Suppose a coupon bond with a par value of $1,000 is currently priced at $950 and has a coupon of $40.Which of the following is TRUE?

For a specific change in the yield to maturity

In comparing the yield to maturity on a Treasury bill with the yield on a discount basis on the same bill,we can say that the yield to maturity

If the current price of a bond is greater than its face value

What are three reasons that banks charge interest on loans?

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1,400 which has payments of $500 per year?

Introducing Money and the Financial System

Money and the Payments System

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters