Question 1

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. A

Question 2

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. A

Question 3

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 for the mortgage appears high,the real cost of borrowing the funds is -1%.Yes,under this circumstance it would be reasonable to make this purchase.

Question 4

All else equal,the ________ the coupon rate on a bond,the ________ the bond's duration.

Accepted Answer

A) higher;longer 
B) higher;shorter 
C) lower;shorter 
D) greater;longer 
A) higher;longer 
B) higher;shorter 
C) lower;shorter 
D) greater;longer

Question 5

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

Question 6

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 7

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 8

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

Accepted Answer

A) .6 percent. 
B) 5 percent. 
C) 6 percent. 
D) 10 percent. 
A) .6 percent. 
B) 5 percent. 
C) 6 percent. 
D) 10 percent.

Question 9

When talking about a coupon bond,face value and ________ mean the same thing.

Accepted Answer

A) par value 
B) coupon value 
C) amortized value 
D) discount value 
A) par value 
B) coupon value 
C) amortized value 
D) discount value

Question 10

If the amount payable in two years is $2420 for a simple loan at 10 percent interest,the loan amount is

Accepted Answer

A) $1000. 
B) $1210. 
C) $2000. 
D) $2200. 
A) $1000. 
B) $1210. 
C) $2000. 
D) $2200.

Question 11

I purchase a 10 percent coupon bond.Based on my purchase price,I calculate a yield to maturity of 8 percent.If I hold this bond to maturity,then my return on this asset is

Accepted Answer

A) 10 percent. 
B) 8 percent. 
C) 12 percent. 
D) there is not enough information to determine the return. 
A) 10 percent. 
B) 8 percent. 
C) 12 percent. 
D) there is not enough information to determine the return.

Question 12

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

Accepted Answer

A) 5 percent 
B) 10 percent 
C) -5 percent 
D) 25 percent 
A) 5 percent 
B) 10 percent 
C) -5 percent 
D) 25 percent

Question 13

Which of the following are TRUE of fixed payment loans?

Accepted Answer

A) The borrower repays both the principal and interest at the maturity date. 
B) Installment loans and mortgages are frequently of the fixed payment type. 
C) The borrower pays interest periodically and the principal at the maturity date. 
D) Commercial loans to businesses are often of this type. 
A) The borrower repays both the principal and interest at the maturity date. 
B) Installment loans and mortgages are frequently of the fixed payment type. 
C) The borrower pays interest periodically and the principal at the maturity date. 
D) Commercial loans to businesses are often of this type.

Question 14

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

Question 15

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 16

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 17

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of

Accepted Answer

A) 8 percent. 
B) 10 percent. 
C) 12 percent. 
D) 14 percent. 
A) 8 percent. 
B) 10 percent. 
C) 12 percent. 
D) 14 percent.

Question 18

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?

Accepted Answer

A) a bond with one year to maturity 
B) a bond with five years to maturity 
C) a bond with ten years to maturity 
D) a bond with twenty years to maturity 
A) a bond with one year to maturity 
B) a bond with five years to maturity 
C) a bond with ten years to maturity 
D) a bond with twenty years to maturity

Question 19

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 20

For a 3-year simple loan of $10,000 at 10 percent,the amount to be repaid is

Accepted Answer

A) $10,030. 
B) $10,300. 
C) $13,000. 
D) $13,310. 
A) $10,030. 
B) $10,300. 
C) $13,000. 
D) $13,310.

Exam 4: The Meaning 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

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

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

All else equal,the ________ the coupon rate on a bond,the ________ the bond's duration.

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

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

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

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

When talking about a coupon bond,face value and ________ mean the same thing.

If the amount payable in two years is $2420 for a simple loan at 10 percent interest,the loan amount is

I purchase a 10 percent coupon bond.Based on my purchase price,I calculate a yield to maturity of 8 percent.If I hold this bond to maturity,then my return on this asset is

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

Which of the following are TRUE of fixed payment loans?

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

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

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

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?

The interest rate on a consol equals the

For a 3-year simple loan of $10,000 at 10 percent,the amount to be repaid 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

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

Filters

All else equal,the the coupon rate on a bond,the the bond's duration.

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