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 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 3

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 4

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

Accepted Answer

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

Question 5

A coupon bond that has no maturity date and no repayment of principal is called a

Accepted Answer

A) consol. 
B) cabinet. 
C) Treasury bill. 
D) Treasury note. 
A) consol. 
B) cabinet. 
C) Treasury bill. 
D) Treasury note.

Question 6

A ________ is bought at a price below its face value,and the ________ value is repaid at the maturity date.

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 7

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 8

The price of a consol equals the coupon payment

Accepted Answer

A) times the interest rate. 
B) plus the interest rate. 
C) minus the interest rate. 
D) divided by the interest rate. 
A) times the interest rate. 
B) plus the interest rate. 
C) minus the interest rate. 
D) divided by the interest rate.

Question 9

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

Accepted Answer

A) present value 
B) future value 
C) interest 
D) deflation 
A) present value 
B) future value 
C) interest 
D) deflation

Question 10

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 11

Comparing a discount bond and a coupon bond with the same maturity

Accepted Answer

A) the coupon bond has the greater effective maturity. 
B) the discount bond has the greater effective maturity. 
C) the effective maturity cannot be calculated for a coupon bond. 
D) the effective maturity cannot be calculated for a discount bond. 
A) the coupon bond has the greater effective maturity. 
B) the discount bond has the greater effective maturity. 
C) the effective maturity cannot be calculated for a coupon bond. 
D) the effective maturity cannot be calculated for a discount bond.

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

A consol paying $20 annually when the interest rate is 5 percent has a price of

Accepted Answer

A) $100. 
B) $200. 
C) $400. 
D) $800. 
A) $100. 
B) $200. 
C) $400. 
D) $800.

Question 14

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

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 15

Assuming the same coupon rate and maturity length,when the interest rate on a Treasury Inflation Indexed Security is 3 percent,and the yield on a nonindexed Treasury bond is 8 percent,the expected rate of inflation is

Accepted Answer

A) 3 percent. 
B) 5 percent. 
C) 8 percent. 
D) 11 percent. 
A) 3 percent. 
B) 5 percent. 
C) 8 percent. 
D) 11 percent.

Question 16

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 17

A credit market instrument that requires the borrower to make the same payment every period until the maturity date 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.

Question 18

If you expect the inflation rate to be 4 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) -3 percent. 
B) -2 percent. 
C) 3 percent. 
D) 7 percent. 
A) -3 percent. 
B) -2 percent. 
C) 3 percent. 
D) 7 percent.

Question 19

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 20

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.

Exam 4: The Meaning of Interest Rates

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

Which of the following are TRUE for a coupon bond?

A discount bond

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

A coupon bond that has no maturity date and no repayment of principal is called a

A ________ is bought at a price below its face value,and the ________ value is repaid at the maturity date.

Which of the following are generally TRUE of bonds?

The price of a consol equals the coupon payment

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

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

Comparing a discount bond and a coupon bond with the same maturity

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 ________.

A consol paying $20 annually when the interest rate is 5 percent has a price of

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

Assuming the same coupon rate and maturity length,when the interest rate on a Treasury Inflation Indexed Security is 3 percent,and the yield on a nonindexed Treasury bond is 8 percent,the expected rate of inflation is

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

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

If you expect the inflation rate to be 4 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

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

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

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

A is bought at a price below its face value,and the value is repaid at the maturity date.

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 .