Question 1

With an interest rate of 6 percent,the present value of $100 to be received next year is approximately

Accepted Answer

A) $106. 
B) $100. 
C) $94. 
D) $92. 
A) $106. 
B) $100. 
C) $94. 
D) $92. C

Question 2

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

Accepted Answer

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

Question 3

A ________ pays the owner a fixed coupon payment every year until the maturity date,when the ________ value is repaid.

Accepted Answer

A) coupon bond;discount 
B) discount bond;discount 
C) coupon bond;face 
D) discount bond;face 
A) coupon bond;discount 
B) discount bond;discount 
C) coupon bond;face 
D) discount bond;face C

Question 4

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

Accepted Answer

A) 2.5 percent. 
B) 5 percent. 
C) 7.5 percent. 
D) 10 percent. 
A) 2.5 percent. 
B) 5 percent. 
C) 7.5 percent. 
D) 10 percent.

Question 5

Which of the following are generally TRUE of bonds?

Accepted Answer

A) A bond's return equals the yield to maturity when the time to maturity is the same as the holding period. 
B) A rise in interest rates is associated with a fall in bond prices,resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. 
C) The longer a bond's maturity,the smaller is the size of the price change associated with an interest rate change. 
D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds. 
A) A bond's return equals the yield to maturity when the time to maturity is the same as the holding period. 
B) A rise in interest rates is associated with a fall in bond prices,resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. 
C) The longer a bond's maturity,the smaller is the size of the price change associated with an interest rate change. 
D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Question 6

The sum of the current yield and the rate of capital gain is called the

Accepted Answer

A) rate of return. 
B) discount yield. 
C) perpetuity yield. 
D) par value. 
A) rate of return. 
B) discount yield. 
C) perpetuity yield. 
D) par value.

Question 7

The ________ is the final amount that will be paid to the holder of a coupon bond.

Accepted Answer

A) discount value 
B) coupon value 
C) face value 
D) present value 
A) discount value 
B) coupon value 
C) face value 
D) present value

Question 8

For simple loans,the simple interest rate is ________ the yield to maturity.

Accepted Answer

A) greater than 
B) less than 
C) equal to 
D) not comparable to 
A) greater than 
B) less than 
C) equal to 
D) not comparable to

Question 9

If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

Accepted Answer

A) 9 percent 
B) 10 percent 
C) 11 percent 
D) 12 percent 
A) 9 percent 
B) 10 percent 
C) 11 percent 
D) 12 percent

Question 10

The duration of a coupon bond increases

Accepted Answer

A) the longer is the bond's term to maturity. 
B) when interest rates increase. 
C) the higher the coupon rate on the bond. 
D) the higher the bond price. 
A) the longer is the bond's term to maturity. 
B) when interest rates increase. 
C) the higher the coupon rate on the bond. 
D) the higher the bond price.

Question 11

Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%. Should you follow his advice?

Accepted Answer

It depends on where you think interest r

Question 12

If a $5,000 face-value discount bond maturing in one year is selling for $5,000,then its yield to maturity is

Accepted Answer

A) 0 percent. 
B) 5 percent. 
C) 10 percent. 
D) 20 percent. 
A) 0 percent. 
B) 5 percent. 
C) 10 percent. 
D) 20 percent.

Question 13

Examples of discount bonds include

Accepted Answer

A) U)S. Treasury bills. 
B) corporate bonds. 
C) U)S. Treasury notes. 
D) municipal bonds. 
A) U)S. Treasury bills. 
B) corporate bonds. 
C) U)S. Treasury notes. 
D) municipal bonds.

Question 14

Negative yields to maturity imply that bond purchasers are better off to hold cash. Acceptance of slightly negative yields by purchasers in recent times suggest that the

Accepted Answer

A) convenience of storing large sums is also important to decisions. 
B) inflation rate is positive. 
C) governments have issued too many bonds. 
D) decision makers are only concerned with yields. 
A) convenience of storing large sums is also important to decisions. 
B) inflation rate is positive. 
C) governments have issued too many bonds. 
D) decision makers are only concerned with yields.

Question 15

Which of the following bonds would you prefer to be buying?

Accepted Answer

A) a $10,000 face-value security with a 10 percent coupon selling for $9,000 
B) a $10,000 face-value security with a 7 percent coupon selling for $10,000 
C) a $10,000 face-value security with a 9 percent coupon selling for $10,000 
D) a $10,000 face-value security with a 10 percent coupon selling for $10,000 
A) a $10,000 face-value security with a 10 percent coupon selling for $9,000 
B) a $10,000 face-value security with a 7 percent coupon selling for $10,000 
C) a $10,000 face-value security with a 9 percent coupon selling for $10,000 
D) a $10,000 face-value security with a 10 percent coupon selling for $10,000

Question 16

Which of the following are TRUE for a coupon bond?

Accepted Answer

A) When the coupon bond is priced at its face value,the yield to maturity equals the coupon rate. 
B) The price of a coupon bond and the yield to maturity are positively related. 
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. 
D) The yield is less than the coupon rate when the bond price is below the par value. 
A) When the coupon bond is priced at its face value,the yield to maturity equals the coupon rate. 
B) The price of a coupon bond and the yield to maturity are positively related. 
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. 
D) The yield is less than the coupon rate when the bond price is below the par value.

Question 17

Short-term bonds are subject to ________ risk because proceeds must be put into some future asset at an unknown interest rate.

Accepted Answer

A) reinvestment 
B) term 
C) liquidity 
D) default 
A) reinvestment 
B) term 
C) liquidity 
D) default

Question 18

In which of the following situations would you prefer to be the borrower?

Accepted Answer

A) The interest rate is 9 percent and the expected inflation rate is 7 percent. 
B) The interest rate is 4 percent and the expected inflation rate is 1 percent. 
C) The interest rate is 13 percent and the expected inflation rate is 15 percent. 
D) The interest rate is 25 percent and the expected inflation rate is 50 percent. 
A) The interest rate is 9 percent and the expected inflation rate is 7 percent. 
B) The interest rate is 4 percent and the expected inflation rate is 1 percent. 
C) The interest rate is 13 percent and the expected inflation rate is 15 percent. 
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

Question 19

Economists consider the ________ to be the most accurate measure of interest rates.

Accepted Answer

A) simple interest rate. 
B) current yield. 
C) yield to maturity. 
D) nominal interest rate. 
A) simple interest rate. 
B) current yield. 
C) yield to maturity. 
D) nominal interest rate.

Question 20

All bonds that will not be held to maturity have interest rate risk which occurs because of the change in the price of the bond as a result of

Accepted Answer

A) interest-rate changes. 
B) changes in the coupon rate. 
C) default of the borrower. 
D) changes in the asset's maturity date. 
A) interest-rate changes. 
B) changes in the coupon rate. 
C) default of the borrower. 
D) changes in the asset's maturity date.

Exam 4: The Meaning of Interest Rates

With an interest rate of 6 percent,the present value of $100 to be received next year is approximately

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

A ________ pays the owner a fixed coupon payment every year until the maturity date,when the ________ value is repaid.

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

Which of the following are generally TRUE of bonds?

The sum of the current yield and the rate of capital gain is called the

The ________ is the final amount that will be paid to the holder of a coupon bond.

For simple loans,the simple interest rate is ________ the yield to maturity.

If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

The duration of a coupon bond increases

Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%. Should you follow his advice?

If a $5,000 face-value discount bond maturing in one year is selling for $5,000,then its yield to maturity is

Examples of discount bonds include

Negative yields to maturity imply that bond purchasers are better off to hold cash. Acceptance of slightly negative yields by purchasers in recent times suggest that the

Which of the following bonds would you prefer to be buying?

Which of the following are TRUE for a coupon bond?

Short-term bonds are subject to ________ risk because proceeds must be put into some future asset at an unknown interest rate.

In which of the following situations would you prefer to be the borrower?

Economists consider the ________ to be the most accurate measure of interest rates.

All bonds that will not be held to maturity have interest rate risk which occurs because of the change in the price of the bond as a result of

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

A pays the owner a fixed coupon payment every year until the maturity date,when the value is repaid.