Question 1

The ________ of a coupon bond and the yield to maturity are inversely related.

Accepted Answer

A) price 
B) par value 
C) maturity date 
D) term 
A) price 
B) par value 
C) maturity date 
D) term

Question 2

Which of the following $1,000 face-value securities has the highest yield to maturity?

Accepted Answer

A) a 5 percent coupon bond selling for $1,000 
B) a 10 percent coupon bond selling for $1,000 
C) a 12 percent coupon bond selling for $1,000 
D) a 12 percent coupon bond selling for $1,100 
A) a 5 percent coupon bond selling for $1,000 
B) a 10 percent coupon bond selling for $1,000 
C) a 12 percent coupon bond selling for $1,000 
D) a 12 percent coupon bond selling for $1,100

Question 3

Duration is

Accepted Answer

A) an asset's term to maturity. 
B) the time until the next interest payment for a coupon bond. 
C) the average lifetime of a debt security's stream of payments. 
D) the time between interest payments for a coupon bond. 
A) an asset's term to maturity. 
B) the time until the next interest payment for a coupon bond. 
C) the average lifetime of a debt security's stream of payments. 
D) the time between interest payments for a coupon bond.

Question 4

All of the following are examples of coupon bonds EXCEPT

Accepted Answer

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

Question 5

Interest-rate risk is the riskiness of an asset's returns due to

Accepted Answer

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

Question 6

If the amount payable in two years is $2,420 for a simple loan at 10 percent interest,the loan amount is

Accepted Answer

A) $1,000. 
B) $1,210. 
C) $2,000. 
D) $2,200. 
A) $1,000. 
B) $1,210. 
C) $2,000. 
D) $2,200.

Question 7

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

Accepted Answer

A) 5 percent. 
B) 8 percent. 
C) 10 percent. 
D) 40 percent. 
A) 5 percent. 
B) 8 percent. 
C) 10 percent. 
D) 40 percent.

Question 8

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year,what is the yearly return on the bond you are holding?

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent

Question 9

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

Accepted Answer

A) yield to maturity 
B) current yield 
C) rate of return 
D) yield rate 
A) yield to maturity 
B) current yield 
C) rate of return 
D) yield rate

Question 10

Which of the following are TRUE concerning the distinction between interest rates and returns?

Accepted Answer

A) The rate of return on a bond will not necessarily equal the interest rate on that bond. 
B) The return can be expressed as the difference between the current yield and the rate of capital gains. 
C) The rate of return will be greater than the interest rate when the price of the bond falls during the holding period. 
D) The return can be expressed as the sum of the discount yield and the rate of capital gains. 
A) The rate of return on a bond will not necessarily equal the interest rate on that bond. 
B) The return can be expressed as the difference between the current yield and the rate of capital gains. 
C) The rate of return will be greater than the interest rate when the price of the bond falls during the holding period. 
D) The return can be expressed as the sum of the discount yield and the rate of capital gains.

Question 11

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called 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.

Question 12

If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

Accepted Answer

A) -5 percent. 
B) -2 percent. 
C) 2 percent. 
D) 12 percent. 
A) -5 percent. 
B) -2 percent. 
C) 2 percent. 
D) 12 percent.

Question 13

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Accepted Answer

A) Fisher equation 
B) Keynesian equation 
C) Monetarist equation 
D) Marshall equation 
A) Fisher equation 
B) Keynesian equation 
C) Monetarist equation 
D) Marshall equation

Question 14

The interest rate on a consol equals the

Accepted Answer

A) price times the coupon payment. 
B) price divided by the coupon payment. 
C) coupon payment plus the price. 
D) coupon payment divided by the price. 
A) price times the coupon payment. 
B) price divided by the coupon payment. 
C) coupon payment plus the price. 
D) coupon payment divided by the price.

Question 15

Which of the following $1,000 face-value securities has the highest yield to maturity?

Accepted Answer

A) a 5 percent coupon bond with a price of $600 
B) a 5 percent coupon bond with a price of $800 
C) a 5 percent coupon bond with a price of $1,000 
D) a 5 percent coupon bond with a price of $1,200 
A) a 5 percent coupon bond with a price of $600 
B) a 5 percent coupon bond with a price of $800 
C) a 5 percent coupon bond with a price of $1,000 
D) a 5 percent coupon bond with a price of $1,200

Question 16

If a $5,000 coupon bond has a coupon rate of 13 percent,then the coupon payment every year is

Accepted Answer

A) $650. 
B) $1,300. 
C) $130. 
D) $13. 
A) $650. 
B) $1,300. 
C) $130. 
D) $13.

Question 17

The present value of an expected future payment ________ as the interest rate increases.

Accepted Answer

A) falls 
B) rises 
C) is constant 
D) is unaffected 
A) falls 
B) rises 
C) is constant 
D) is unaffected

Question 18

An asset's interest rate risk ________ as the duration of the asset ________.

Accepted Answer

A) increases;decreases 
B) decreases;decreases 
C) decreases;increases 
D) remains constant;increases 
A) increases;decreases 
B) decreases;decreases 
C) decreases;increases 
D) remains constant;increases

Question 19

A fully amortized loan is another name for

Accepted Answer

A) a simple loan. 
B) a fixed-payment loan. 
C) a commercial loan. 
D) an unsecured loan. 
A) a simple loan. 
B) a fixed-payment loan. 
C) a commercial loan. 
D) an unsecured loan.

Question 20

If a $10,000 face-value discount bond maturing in one year is selling for $5,000,then its yield to maturity is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 50 percent. 
D) 100 percent. 
A) 5 percent. 
B) 10 percent. 
C) 50 percent. 
D) 100 percent.

Exam 4: The Meaning of Interest Rates

The ________ of a coupon bond and the yield to maturity are inversely related.

Which of the following $1,000 face-value securities has the highest yield to maturity?

Duration is

All of the following are examples of coupon bonds EXCEPT

Interest-rate risk is the riskiness of an asset's returns due to

If the amount payable in two years is $2,420 for a simple loan at 10 percent interest,the loan amount is

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year,what is the yearly return on the bond you are holding?

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

Which of the following are TRUE concerning the distinction between interest rates and returns?

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

The interest rate on a consol equals the

Which of the following $1,000 face-value securities has the highest yield to maturity?

If a $5,000 coupon bond has a coupon rate of 13 percent,then the coupon payment every year is

The present value of an expected future payment ________ as the interest rate increases.

An asset's interest rate risk ________ as the duration of the asset ________.

A fully amortized loan is another name for

If a $10,000 face-value discount bond maturing in one year is selling for $5,000,then its yield to maturity is

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

An asset's interest rate risk as the duration of the asset .