Question 1

The rate of return that an investor demands is referred to as

Accepted Answer

A)  Coupon-equivalent 
B)  Bond-equivalent 
C)  Investment rate of return 
D)  All of the above 
E)  None of the above 
A)  Coupon-equivalent 
B)  Bond-equivalent 
C)  Investment rate of return 
D)  All of the above 
E)  None of the above

Question 2

Under the terms of most fixed and variable-rate mortgage loans the monthly payments in the early life of a loan go almost entirely to pay the interest on the loan.

Accepted Answer

A) True 
 B)False

Question 3

Dealers in securities quote a bid price which means the price customers must bid for the dealers' securities in order to buy them.

Accepted Answer

A) True 
 B)False

Question 4

A rise in interest rates means lower prices for bonds and other fixed-income securities.

Accepted Answer

A) True 
 B)False

Question 5

The annual percentage yield (APY) on an account with $180.10 annual interest earned and a daily average balance of $1702.11 would be:

Accepted Answer

A)  10.58% 
B)  .1058% 
C)  10.9% 
D)  8.41% 
E)  None of the above 
A)  10.58% 
B)  .1058% 
C)  10.9% 
D)  8.41% 
E)  None of the above

Question 6

An increase in the demand for loanable funds (supply unchanged) leads to higher interest rates and security prices.

Accepted Answer

A) True 
 B)False

Question 7

The rate of return on a savings account that regulated depository institutions must report to their customers is called the:

Accepted Answer

A)  Annual percentage rate (APR) 
B)  Prevailing market rate (PMR) 
C)  Effective annual rate (EAR) 
D)  Annual percentage yield (APY) 
E)  None of the above 
A)  Annual percentage rate (APR) 
B)  Prevailing market rate (PMR) 
C)  Effective annual rate (EAR) 
D)  Annual percentage yield (APY) 
E)  None of the above

Question 8

If you were interested in buying a bond listed on a security dealer's quote sheet at 96-5 points, you would have to pay $96,500 for the bond.

Accepted Answer

A) True 
 B)False

Question 9

Explain the meaning of the interest rate measure known as the yield to maturity.

Accepted Answer

The yield to maturity of a financial ass

Question 10

Consumers appear to base their borrowing decisions on the APR quoted by different lenders.

Accepted Answer

A) True 
 B)False

Question 11

The yield-to-maturity measure assumes the investor can reinvest all cash inflows from a security at the calculated yield to maturity.

Accepted Answer

A) True 
 B)False

Question 12

Frequently, stock prices and interest rates move in opposite directions. This can be explained by the following:

Accepted Answer

A)  If interest rates rise, debt instruments now offering higher yields become more attractive relative to some stocks, causing stock sales and declining equity prices, ceteris paribus 
B)  If interest rates fall, debt instruments will be sold and money will flow into equities, which should perform better due to the lower cost of capital created by lower interest rates 
C)  As interest rates rise, shareholders will expect less of a minimum rate of return 
D)  Choices A and B only 
E)  None of the above 
A)  If interest rates rise, debt instruments now offering higher yields become more attractive relative to some stocks, causing stock sales and declining equity prices, ceteris paribus 
B)  If interest rates fall, debt instruments will be sold and money will flow into equities, which should perform better due to the lower cost of capital created by lower interest rates 
C)  As interest rates rise, shareholders will expect less of a minimum rate of return 
D)  Choices A and B only 
E)  None of the above

Question 13

The majority of bonds make periodic payments on a

Accepted Answer

A)  Monthly basis 
B)  Quarterly basis 
C)  Semiannual basis 
D)  Annual basis 
E)  None of the above 
A)  Monthly basis 
B)  Quarterly basis 
C)  Semiannual basis 
D)  Annual basis 
E)  None of the above

Question 14

Typically, home buyers pay more ____ than they do ____ over the life of the home mortgage loan.

Accepted Answer

A)  Interest, principal 
B)  Fees, interest 
C)  Principal, fees 
D)  Principal, interest 
E)  None of the above 
A)  Interest, principal 
B)  Fees, interest 
C)  Principal, fees 
D)  Principal, interest 
E)  None of the above

Question 15

The annual percentage yield (APY) on an account with $143.10 annual interest earned and a daily average balance of $1702.11 would be:

Accepted Answer

A)  11.89% 
B)  .0841% 
C)  8.77% 
D)  8.41% 
E)  None of the above 
A)  11.89% 
B)  .0841% 
C)  8.77% 
D)  8.41% 
E)  None of the above

Question 16

Although seldom seen in the U.S., discount method loans are still quite popular in Latin America.

Accepted Answer

A) True 
 B)False

Question 17

There is considerable research evidence that passage of Truth in Lending has encouraged consumers to vigorously shop around for credit and to compare prices.

Accepted Answer

A) True 
 B)False

Question 18

An issue of XYZ Corporation's preferred stock with a $50 par value promises an 8 percent annual dividend. What was the stock's current yield at time of issue if it is issued at par? Suppose the stock's market price rises to $60 per share. What is its current yield?

Accepted Answer

At par the current yield is 8 percent. I

Question 19

If a debt security's coupon rate is below the prevailing market interest rate on comparable securities, that security will sell at a price:

Accepted Answer

A)  Above its par value 
B)  At a discount from par 
C)  At a premium above par 
D)  That is indeterminate without more information about the security 
E)  None of the above 
A)  Above its par value 
B)  At a discount from par 
C)  At a premium above par 
D)  That is indeterminate without more information about the security 
E)  None of the above

Question 20

If a corporate bond is selling above par, then

Accepted Answer

A)  Its yield to maturity is below the coupon rate 
B)  Its yield to maturity is above the coupon rate 
C)  It has reached maturity 
D)  All of the above 
E)  None of the above 
A)  Its yield to maturity is below the coupon rate 
B)  Its yield to maturity is above the coupon rate 
C)  It has reached maturity 
D)  All of the above 
E)  None of the above

Exam 6: Financial Concepts and Interest Rates

The rate of return that an investor demands is referred to as

Under the terms of most fixed and variable-rate mortgage loans the monthly payments in the early life of a loan go almost entirely to pay the interest on the loan.

Dealers in securities quote a bid price which means the price customers must bid for the dealers' securities in order to buy them.

A rise in interest rates means lower prices for bonds and other fixed-income securities.

The annual percentage yield (APY) on an account with $180.10 annual interest earned and a daily average balance of $1702.11 would be:

An increase in the demand for loanable funds (supply unchanged) leads to higher interest rates and security prices.

The rate of return on a savings account that regulated depository institutions must report to their customers is called the:

If you were interested in buying a bond listed on a security dealer's quote sheet at 96-5 points, you would have to pay $96,500 for the bond.

Explain the meaning of the interest rate measure known as the yield to maturity.

Consumers appear to base their borrowing decisions on the APR quoted by different lenders.

The yield-to-maturity measure assumes the investor can reinvest all cash inflows from a security at the calculated yield to maturity.

Frequently, stock prices and interest rates move in opposite directions. This can be explained by the following:

The majority of bonds make periodic payments on a

Typically, home buyers pay more ____ than they do ____ over the life of the home mortgage loan.

The annual percentage yield (APY) on an account with $143.10 annual interest earned and a daily average balance of $1702.11 would be:

Although seldom seen in the U.S., discount method loans are still quite popular in Latin America.

There is considerable research evidence that passage of Truth in Lending has encouraged consumers to vigorously shop around for credit and to compare prices.

An issue of XYZ Corporation's preferred stock with a $50 par value promises an 8 percent annual dividend. What was the stock's current yield at time of issue if it is issued at par? Suppose the stock's market price rises to $60 per share. What is its current yield?

If a debt security's coupon rate is below the prevailing market interest rate on comparable securities, that security will sell at a price:

If a corporate bond is selling above par, then

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

Filters

Typically, home buyers pay more than they do over the life of the home mortgage loan.