Question 1

How are bond and stock prices measured today?

Accepted Answer

Bond prices are usually expressed in points and fractions of a point, with each point representing $1 on a $100 basis or $10 for a $1000 bond. For example, a bond priced at 97 is selling for $97 on a $100 basis or $970 for each $1000 in face value. The prices of common and preferred stock are measured today in many markets in terms of dollars and decimal fractions of a dollar (or some other currency unit). For example, $40.25 per share (versus $40 1/4 in the recent past).

Question 2

A home mortgage loan for $80,000 is available from the neighboring bank at an interest rate of one percent per month. The loan will mature in 25 years. Approximately what payment must the borrower make each month under the terms of this loan agreement?

Accepted Answer

A)  $692 
B)  $729 
C)  $843 
D)  $950 
E)  None of the above 
A)  $692 
B)  $729 
C)  $843 
D)  $950 
E)  None of the above C

Question 3

Using descriptions below, identify each of the key terms or concepts that were discussed in the chapter entitled "Measuring and Calculating Interest Rates and Financial Asset Prices": 
a. Rate of return expected from a financial asset based on the expected cash flows generated by the asset between the purchase date and the asset's sale date. 
b. Promised interest rate usually printed on the face of a bond or note. 
c. Known as the price of credit and usually measured by the ratio of two values.

Accepted Answer

a. Yield-to-maturity.
b. Coupon rate.
c. Interest rate.

Question 4

The contracted rate which a bond issuer agrees to pay at the time a security is issued is the:

Accepted Answer

A)  Coupon rate 
B)  Current yield 
C)  Yield to maturity 
D)  Holding period yield 
E)  Simple interest rate
F) Add-on rate
G) Discount rate
H) Annual percentage rate (APR) 
A)  Coupon rate 
B)  Current yield 
C)  Yield to maturity 
D)  Holding period yield 
E)  Simple interest rate
F) Add-on rate
G) Discount rate
H) Annual percentage rate (APR)

Question 5

If a security's coupon rate equals the current market interest rate on comparable securities that security will trade at par.

Accepted Answer

A) True 
 B)False

Question 6

If a debt security's coupon rate equals the current market interest rate on comparable securities, the security's market price will be:

Accepted Answer

A)  At a premium above par 
B)  At a discount from par 
C)  At par 
D)  Indeterminate without more information about the security 
E)  None of the above 
A)  At a premium above par 
B)  At a discount from par 
C)  At par 
D)  Indeterminate without more information about the security 
E)  None of the above

Question 7

When considering the purchase of a U.S. Treasury note or corporate bond, the buyer is usually aware of

Accepted Answer

A)  The promised amount of any payments 
B)  The dates of any payments 
C)  The maturity date 
D)  All of the above 
E)  None of the above 
A)  The promised amount of any payments 
B)  The dates of any payments 
C)  The maturity date 
D)  All of the above 
E)  None of the above

Question 8

A bank customer takes out a CD from his principal bank for 90 days in the amount of $2,500 and earns $99 in interest for the 90-day period. What is the depositor's APY?

Accepted Answer

The daily average balance is $

Question 9

By convention, all interest rates are expressed in percent per annum.

Accepted Answer

A) True 
 B)False

Question 10

A firm expected to experience rapid growth in earnings in the future it will tend to have high stock prices in relation to their prior year's earnings and hence a low PE.

Accepted Answer

A) True 
 B)False

Question 11

A firm with a higher than average PE ratio is generally expected to have

Accepted Answer

A)  High stock price in relation to their prior year's earnings 
B)  Losses in the future 
C)  Rapid growth in earnings 
D)  All of the above 
E)  A and C above 
A)  High stock price in relation to their prior year's earnings 
B)  Losses in the future 
C)  Rapid growth in earnings 
D)  All of the above 
E)  A and C above

Question 12

If a security's coupon rate is less than the prevailing market rate of interest it will sell at a premium above its par value.

Accepted Answer

A) True 
 B)False

Question 13

A loan in which the lender earns interest income on both the principal amount of the loan and on accumulated interest from the loan is a loan made under the:

Accepted Answer

A)  Simple interest rate method 
B)  Add-on rate 
C)  Discount method 
D)  Compound interest method 
E)  None of the above 
A)  Simple interest rate method 
B)  Add-on rate 
C)  Discount method 
D)  Compound interest method 
E)  None of the above

Question 14

Suppose an investor is promised $1,200 one year from today with a promised interest rate of 18 percent. Then the present value of the $1,200 must be $1,010.

Accepted Answer

A) True 
 B)False

Question 15

If the supply of loanable funds increases (demand unchanged), interest rates and security prices will tend to fall.

Accepted Answer

A) True 
 B)False

Question 16

The yield to maturity formula assumes that an investor will hold a security until it reaches final maturity.

Accepted Answer

A) True 
 B)False

Question 17

See if you can explain the meaning of the following terms and, where a formula is involved, explain the components of each formula:
a. Simple interest 
b. Add-on interest
c. Discount method
d. APR
e. Compounding of interest 
f. APY

Accepted Answer

a. A method of determining the interest

Question 18

Why are yields on bonds and other debt securities typically quoted on a yield-to-maturity basis, while stock yields are usually expressed as current yields or holding-period yields?

Accepted Answer

Yield to maturity provides a common basi

Question 19

The holding-period yield on a security includes the selling price of the security.

Accepted Answer

A) True 
 B)False

Question 20

Under this method for figuring the interest rate on a loan, the borrower receives as proceeds of the loan the difference between the total amount owed and the interest bill. This method is reflected in which of the following rate measures?

Accepted Answer

A)  Coupon rate 
B)  Yield to maturity 
C)  Current yield 
D)  Holding-period yield 
E)  Annual percentage rate (APR)
F) Simple interest rate
G) Add-on rate
H) Discount rate 
A)  Coupon rate 
B)  Yield to maturity 
C)  Current yield 
D)  Holding-period yield 
E)  Annual percentage rate (APR)
F) Simple interest rate
G) Add-on rate
H) Discount rate

Exam 6: Financial Concepts and Interest Rates

How are bond and stock prices measured today?

A home mortgage loan for $80,000 is available from the neighboring bank at an interest rate of one percent per month. The loan will mature in 25 years. Approximately what payment must the borrower make each month under the terms of this loan agreement?

The contracted rate which a bond issuer agrees to pay at the time a security is issued is the:

If a security's coupon rate equals the current market interest rate on comparable securities that security will trade at par.

If a debt security's coupon rate equals the current market interest rate on comparable securities, the security's market price will be:

When considering the purchase of a U.S. Treasury note or corporate bond, the buyer is usually aware of

A bank customer takes out a CD from his principal bank for 90 days in the amount of $2,500 and earns $99 in interest for the 90-day period. What is the depositor's APY?

By convention, all interest rates are expressed in percent per annum.

A firm expected to experience rapid growth in earnings in the future it will tend to have high stock prices in relation to their prior year's earnings and hence a low PE.

A firm with a higher than average PE ratio is generally expected to have

If a security's coupon rate is less than the prevailing market rate of interest it will sell at a premium above its par value.

A loan in which the lender earns interest income on both the principal amount of the loan and on accumulated interest from the loan is a loan made under the:

Suppose an investor is promised $1,200 one year from today with a promised interest rate of 18 percent. Then the present value of the $1,200 must be $1,010.

If the supply of loanable funds increases (demand unchanged), interest rates and security prices will tend to fall.

The yield to maturity formula assumes that an investor will hold a security until it reaches final maturity.

See if you can explain the meaning of the following terms and, where a formula is involved, explain the components of each formula: a. Simple interest b. Add-on interest c. Discount method d. APR e. Compounding of interest f. APY

Why are yields on bonds and other debt securities typically quoted on a yield-to-maturity basis, while stock yields are usually expressed as current yields or holding-period yields?

The holding-period yield on a security includes the selling price of the security.

Under this method for figuring the interest rate on a loan, the borrower receives as proceeds of the loan the difference between the total amount owed and the interest bill. This method is reflected in which of the following rate measures?

Understanding the Financial System and Its Impact on the Economy and Markets

Financial Systems, Monetary Units, and the Role of Money in the Economy

Financial Indices, Market Information, and Economic Data

The Financial Crisis and Its Impact on the Mortgage Market and Economy

Understanding Interest Rates, Savings, and the Wealth Effect

Effects of Inflation and Yield Curves on Stock Prices and Investments

Understanding Risk and Market Factors in Financial Securities

Exploring Financial Markets and Hedging Strategies

Factors Affecting the Volume of CDs

Exploring the Reserve Accounting System, Money Markets, and Financial Instruments

Exploring Central Banks and Their Impact on the Economy and Financial System

Central Banking and Monetary Policy: Exploring Tools and Strategies

Banking and Financial Services: Regulations, Operations, and Trends

Comparative Analysis of Financial Institutions and Their Operations

Exploring Various Aspects of Pension Funds, Finance Companies, and Insurance Industry

The Impact of Deregulation and Regulation on Financial Institutions and Banking Industry in the United States

Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Corporate Bond Pricing, Market Development, and Financing Strategies

The Truth About Regulation Fd and Stock Holdings: Debunking Common Myths in the Financial Market

Flexible Savings Account Options

Mortgage Market and Mortgage Instruments

International Financial Transactions and Balance of Payments

International Banking and Financial Regulations

Exploring the Complexities of Financial Services and Regulation

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