Question 1

If the real interest rate is 2% and expected inflation is 2%,the nominal interest rate is

Accepted Answer

A)  0%. 
B)  1%. 
C)  2%. 
D)  4%. 
A)  0%. 
B)  1%. 
C)  2%. 
D)  4%.

Question 2

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

Accepted Answer

A)  higher monthly payments 
B)  more interest paid over the life of the loan 
C)  faster payoff of principal 
D)  lower monthly payments initially, but higher monthly payments in the future 
A)  higher monthly payments 
B)  more interest paid over the life of the loan 
C)  faster payoff of principal 
D)  lower monthly payments initially, but higher monthly payments in the future

Question 3

What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?

Accepted Answer

The yield

Question 4

Nominal interest rates are higher than real interest rates as long as

Accepted Answer

A)  expected inflation is positive. 
B)  the government taxes interest income. 
C)  inflation is expected to decline in the future. 
D)  long-term interest rates are higher than short-term interest rates. 
A)  expected inflation is positive. 
B)  the government taxes interest income. 
C)  inflation is expected to decline in the future. 
D)  long-term interest rates are higher than short-term interest rates.

Question 5

Which of the following is the correct expression for the approximate expected real interest rate?

Accepted Answer

A)  r = i + πe 
B)  r = i - πe 
C)  r = i/πe 
D)  r = iπe 
A)  r = i + πe 
B)  r = i - πe 
C)  r = i/πe 
D)  r = iπe

Question 6

Though Treasury bonds may have little default risk,what type of risk exists when current interest rates are low?

Accepted Answer

A)  price risk 
B)  refinancing risk 
C)  interest-rate risk 
D)  present value risk 
A)  price risk 
B)  refinancing risk 
C)  interest-rate risk 
D)  present value risk

Question 7

The rate of return is equal to

Accepted Answer

A)  the coupon rate plus the rate of capital gains. 
B)  the coupon rate plus the current yield. 
C)  the current yield plus the rate of capital gains. 
D)  the coupon rate multiplied by the rate of capital gains. 
A)  the coupon rate plus the rate of capital gains. 
B)  the coupon rate plus the current yield. 
C)  the current yield plus the rate of capital gains. 
D)  the coupon rate multiplied by the rate of capital gains.

Question 8

$1 received n years from now has a value today of

Accepted Answer

A)  ($1 + i)/i. 
B)  $1/(1 + i). 
C)  ($1 + i)n/i. 
D)  $1/(1 + i)n. 
A)  ($1 + i)/i. 
B)  $1/(1 + i). 
C)  ($1 + i)n/i. 
D)  $1/(1 + i)n.

Question 9

Suppose a bond has a coupon of $40,face value of $1,000,and current price of $950.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 of the following statements about the rate of return is NOT correct?

Accepted Answer

A)  The total rate of return may be greater or less than the current yield. 
B)  The total rate of return may be greater or less than the rate of capital gain. 
C)  The total rate of return may never be negative. 
D)  The total rate of return is greater than the coupon, holding everything else constant. 
A)  The total rate of return may be greater or less than the current yield. 
B)  The total rate of return may be greater or less than the rate of capital gain. 
C)  The total rate of return may never be negative. 
D)  The total rate of return is greater than the coupon, holding everything else constant.

Question 11

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Accepted Answer

A)  5.3% 
B)  6% 
C)  6.38% 
D)  Not enough information has been provided to determine the answer. 
A)  5.3% 
B)  6% 
C)  6.38% 
D)  Not enough information has been provided to determine the answer.

Question 12

A coupon bond involves

Accepted Answer

A)  interest payments from the borrower to the lender periodically during the life of the loan and payment by the borrower to the lender of the face value of the loan at maturity. 
B)  interest and principal payments from the borrower to the lender periodically during the life of the loan. 
C)  periodic payments by the borrower to the lender that include both principal and interest. 
D)  periodic payments by the borrower to the lender that include principal, but not interest. 
A)  interest payments from the borrower to the lender periodically during the life of the loan and payment by the borrower to the lender of the face value of the loan at maturity. 
B)  interest and principal payments from the borrower to the lender periodically during the life of the loan. 
C)  periodic payments by the borrower to the lender that include both principal and interest. 
D)  periodic payments by the borrower to the lender that include principal, but not interest.

Question 13

At an interest rate of 6%,how much will need to be invested today to have $10,000 in 5 years?

Accepted Answer

A)  $5,000 
B)  $7,473 
C)  $10,000 
D)  $13,382 
A)  $5,000 
B)  $7,473 
C)  $10,000 
D)  $13,382

Question 14

Which of the following is NOT a fixed payment loan?

Accepted Answer

A)  a home mortgage 
B)  a car loan 
C)  a U.S. Treasury note 
D)  a student loan 
A)  a home mortgage 
B)  a car loan 
C)  a U.S. Treasury note 
D)  a student loan

Question 15

Which of the following is a fixed payment loan?

Accepted Answer

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

Question 16

A one-year discount bond with a par value of $1,000 sold today,at issuance,for $943 has a yield to maturity of

Accepted Answer

A)  4.30%. 
B)  5.70%. 
C)  6.04%. 
D)  9.43%. 
A)  4.30%. 
B)  5.70%. 
C)  6.04%. 
D)  9.43%.

Question 17

If you deposit $10,000 in a savings account at an annual interest rate of 6%,how much will you have in the account at the end of three years?

Accepted Answer

A)  $8,396 
B)  $10,600 
C)  $11,800 
D)  $11,910 
A)  $8,396 
B)  $10,600 
C)  $11,800 
D)  $11,910

Question 18

Which of the following involves payment of part of the face value or principal prior to maturity?

Accepted Answer

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

Question 19

A one-year discount bond with a par value of $5,000 sold today,at issuance,for $4,750 has a yield to maturity of

Accepted Answer

A)  2.50%. 
B)  5.00%. 
C)  5.26%. 
D)  9.75%. 
A)  2.50%. 
B)  5.00%. 
C)  5.26%. 
D)  9.75%.

Question 20

Which of the following represents the equation that would be used to determine the yield to maturity of a corporate bond with a face value of $1,000,price of $1,100,coupon rate of 5%,and maturity in three years?

Accepted Answer

A)  $1,100 = $1,500/(1 + i)3 
B)  $1,100 = $500/(1 + i) + $500/(1 + i)2 + 1,000/(1 + i)3 
C)  $1,100 = $500/(1 + i) + $500/(1 + i)2 + 500/(1 + i)3 
D)  $1,100 = $500/(1 + i) + $500/(1 + i)2 + 1,500/(1 + i)3 
A)  $1,100 = $1,500/(1 + i)3 
B)  $1,100 = $500/(1 + i) + $500/(1 + i)2 + 1,000/(1 + i)3 
C)  $1,100 = $500/(1 + i) + $500/(1 + i)2 + 500/(1 + i)3 
D)  $1,100 = $500/(1 + i) + $500/(1 + i)2 + 1,500/(1 + i)3

If the real interest rate is 2% and expected inflation is 2%,the nominal interest rate is

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?

Nominal interest rates are higher than real interest rates as long as

Which of the following is the correct expression for the approximate expected real interest rate?

Though Treasury bonds may have little default risk,what type of risk exists when current interest rates are low?

The rate of return is equal to

$1 received n years from now has a value today of

Suppose a bond has a coupon of $40,face value of $1,000,and current price of $950.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Which of the following statements about the rate of return is NOT correct?

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

A coupon bond involves

At an interest rate of 6%,how much will need to be invested today to have $10,000 in 5 years?

Which of the following is NOT a fixed payment loan?

Which of the following is a fixed payment loan?

A one-year discount bond with a par value of $1,000 sold today,at issuance,for $943 has a yield to maturity of

If you deposit $10,000 in a savings account at an annual interest rate of 6%,how much will you have in the account at the end of three years?

Which of the following involves payment of part of the face value or principal prior to maturity?

A one-year discount bond with a par value of $5,000 sold today,at issuance,for $4,750 has a yield to maturity of

Which of the following represents the equation that would be used to determine the yield to maturity of a corporate bond with a face value of $1,000,price of $1,100,coupon rate of 5%,and maturity in three years?

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

If the real interest rate is 2% and expected inflation is 2%,the nominal interest rate is

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?

Nominal interest rates are higher than real interest rates as long as

Which of the following is the correct expression for the approximate expected real interest rate?

Though Treasury bonds may have little default risk,what type of risk exists when current interest rates are low?

The rate of return is equal to

$1 received n years from now has a value today of

Suppose a bond has a coupon of $40,face value of $1,000,and current price of $950.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Which of the following statements about the rate of return is NOT correct?

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

A coupon bond involves

At an interest rate of 6%,how much will need to be invested today to have $10,000 in 5 years?

Which of the following is NOT a fixed payment loan?

Which of the following is a fixed payment loan?

A one-year discount bond with a par value of $1,000 sold today,at issuance,for $943 has a yield to maturity of

If you deposit $10,000 in a savings account at an annual interest rate of 6%,how much will you have in the account at the end of three years?

Which of the following involves payment of part of the face value or principal prior to maturity?

A one-year discount bond with a par value of $5,000 sold today,at issuance,for $4,750 has a yield to maturity of

Which of the following represents the equation that would be used to determine the yield to maturity of a corporate bond with a face value of $1,000,price of $1,100,coupon rate of 5%,and maturity in three years?

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