Question 1

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year?

Accepted Answer

A) 5 percent 
B) 10 percent 
C) -5 percent 
D) -10 percent 
A) 5 percent 
B) 10 percent 
C) -5 percent 
D) -10 percent

Question 2

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of

Accepted Answer

A) 3 percent. 
B) 20 percent. 
C) 25 percent. 
D) 33.3 percent. 
A) 3 percent. 
B) 20 percent. 
C) 25 percent. 
D) 33.3 percent.

Question 3

The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as

Accepted Answer

A) the real interest rate. 
B) the nominal interest rate. 
C) the rate of inflation. 
D) the rate of deflation. 
A) the real interest rate. 
B) the nominal interest rate. 
C) the rate of inflation. 
D) the rate of deflation.

Question 4

The interest rate that describes how well a lender has done in real terms after the fact is called the

Accepted Answer

A) ex post real interest rate. 
B) ex ante real interest rate. 
C) ex post nominal interest rate. 
D) ex ante nominal interest rate. 
A) ex post real interest rate. 
B) ex ante real interest rate. 
C) ex post nominal interest rate. 
D) ex ante nominal interest rate.

Question 5

The duration of a portfolio of securities is the weighted ________ of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each security.

Accepted Answer

A) average 
B) maximum 
C) minimum 
D) median 
A) average 
B) maximum 
C) minimum 
D) median

Question 6

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

Accepted Answer

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

Question 7

The yield to maturity for a discount bond is ________ related to the current bond price.

Accepted Answer

A) negatively 
B) positively 
C) not 
D) directly 
A) negatively 
B) positively 
C) not 
D) directly

Question 8

The ________ interest rate more accurately reflects the true cost of borrowing.

Accepted Answer

A) nominal 
B) real 
C) discount 
D) market 
A) nominal 
B) real 
C) discount 
D) market

Question 9

Prices and returns for ________ bonds are more volatile than those for ________ bonds,everything else held constant.

Accepted Answer

A) long-term;long-term 
B) long-term;short-term 
C) short-term;long-term 
D) short-term;short-term 
A) long-term;long-term 
B) long-term;short-term 
C) short-term;long-term 
D) short-term;short-term

Question 10

The nominal interest rate minus the expected rate of inflation

Accepted Answer

A) defines the real interest rate. 
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. 
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. 
D) defines the discount rate. 
A) defines the real interest rate. 
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. 
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. 
D) defines the discount rate.

Question 11

If $22,050 is the amount payable in two years for a $20,000 simple loan made today,the interest rate is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 22 percent. 
D) 25 percent. 
A) 5 percent. 
B) 10 percent. 
C) 22 percent. 
D) 25 percent.

Question 12

The price of a coupon bond and the yield to maturity are ________ related;that is,as the yield to maturity ________,the price of the bond ________.

Accepted Answer

A) positively;rises;rises 
B) negatively;falls;falls 
C) positively;rises;falls 
D) negatively;rises;falls 
A) positively;rises;rises 
B) negatively;falls;falls 
C) positively;rises;falls 
D) negatively;rises;falls

Question 13

The ________ interest rate is adjusted for expected changes in the price level.

Accepted Answer

A) ex ante real 
B) ex post real 
C) ex post nominal 
D) ex ante nominal 
A) ex ante real 
B) ex post real 
C) ex post nominal 
D) ex ante nominal

Question 14

A discount bond

Accepted Answer

A) pays the bondholder a fixed amount every period and the face value at maturity. 
B) pays the bondholder the face value at maturity. 
C) pays all interest and the face value at maturity. 
D) pays the face value at maturity plus any capital gain. 
A) pays the bondholder a fixed amount every period and the face value at maturity. 
B) pays the bondholder the face value at maturity. 
C) pays all interest and the face value at maturity. 
D) pays the face value at maturity plus any capital gain.

Question 15

Another name for a consol is a ________ because it is a bond with no maturity date. The owner receives fixed coupon payments forever.

Accepted Answer

A) perpetuity 
B) discount bond 
C) municipality 
D) high-yield bond 
A) perpetuity 
B) discount bond 
C) municipality 
D) high-yield bond

Question 16

An equal increase in all bond interest rates

Accepted Answer

A) increases the return to all bond maturities by an equal amount. 
B) decreases the return to all bond maturities by an equal amount. 
C) has no effect on the returns to bonds. 
D) decreases long-term bond returns more than short-term bond returns. 
A) increases the return to all bond maturities by an equal amount. 
B) decreases the return to all bond maturities by an equal amount. 
C) has no effect on the returns to bonds. 
D) decreases long-term bond returns more than short-term bond returns.

Question 17

Which of the following $1,000 face-value securities has the lowest 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 15 percent coupon bond selling for $1,000 
D) a 15 percent coupon bond selling for $900 
A) a 5 percent coupon bond selling for $1,000 
B) a 10 percent coupon bond selling for $1,000 
C) a 15 percent coupon bond selling for $1,000 
D) a 15 percent coupon bond selling for $900

Question 18

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.

Accepted Answer

Even though the nominal rate f

Question 19

If a $1,000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

Accepted Answer

A) $37.50. 
B) $3.75. 
C) $375.00. 
D) $13.75 
A) $37.50. 
B) $3.75. 
C) $375.00. 
D) $13.75

Question 20

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

Accepted Answer

A) sum 
B) difference 
C) multiple 
D) log 
A) sum 
B) difference 
C) multiple 
D) log

Exam 4: The Meaning of Interest Rates

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year?

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of

The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as

The interest rate that describes how well a lender has done in real terms after the fact is called the

The duration of a portfolio of securities is the weighted ________ of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each security.

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

The yield to maturity for a discount bond is ________ related to the current bond price.

The ________ interest rate more accurately reflects the true cost of borrowing.

Prices and returns for ________ bonds are more volatile than those for ________ bonds,everything else held constant.

The nominal interest rate minus the expected rate of inflation

If $22,050 is the amount payable in two years for a $20,000 simple loan made today,the interest rate is

The price of a coupon bond and the yield to maturity are ________ related;that is,as the yield to maturity ________,the price of the bond ________.

The ________ interest rate is adjusted for expected changes in the price level.

A discount bond

Another name for a consol is a ________ because it is a bond with no maturity date. The owner receives fixed coupon payments forever.

An equal increase in all bond interest rates

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

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.

If a $1,000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

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

Prices and returns for bonds are more volatile than those for bonds,everything else held constant.

The price of a coupon bond and the yield to maturity are related;that is,as the yield to maturity ,the price of the bond .