Question 1

There is ________ for any bond whose time to maturity matches the holding period.

Accepted Answer

A) no interest-rate risk 
B) a large interest-rate risk 
C) rate-of-return risk 
D) yield-to-maturity risk 
A) no interest-rate risk 
B) a large interest-rate risk 
C) rate-of-return risk 
D) yield-to-maturity risk

Question 2

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 3

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 4

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 5

Which of the following $5,000 face-value securities has the highest yield to maturity?

Accepted Answer

A) a 6 percent coupon bond selling for $5,000 
B) a 6 percent coupon bond selling for $5,500 
C) a 10 percent coupon bond selling for $5,000 
D) a 12 percent coupon bond selling for $4,500 
A) a 6 percent coupon bond selling for $5,000 
B) a 6 percent coupon bond selling for $5,500 
C) a 10 percent coupon bond selling for $5,000 
D) a 12 percent coupon bond selling for $4,500

Question 6

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 7

If a security pays $55 in one year and $133 in three years,its present value is $150 if the interest rate is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 12.5 percent. 
D) 15 percent. 
A) 5 percent. 
B) 10 percent. 
C) 12.5 percent. 
D) 15 percent.

Question 8

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 9

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 10

A bond that is bought at a price below its face value and the face value is repaid at a maturity date 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 11

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 12

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 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

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 15

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 16

What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

Accepted Answer

A) $453.51 
B) $500.00 
C) $476.25 
D) $550.00 
A) $453.51 
B) $500.00 
C) $476.25 
D) $550.00

Question 17

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's

Accepted Answer

A) coupon rate. 
B) maturity rate. 
C) face value rate. 
D) payment rate. 
A) coupon rate. 
B) maturity rate. 
C) face value rate. 
D) payment rate.

Question 18

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 19

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 20

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

Exam 4: The Meaning of Interest Rates

There is ________ for any bond whose time to maturity matches the holding period.

A fully amortized loan is another name for

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

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?

Which of the following $5,000 face-value securities has the highest yield to maturity?

An equal increase in all bond interest rates

If a security pays $55 in one year and $133 in three years,its present value is $150 if the interest rate is

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

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

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

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

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

Examples of discount bonds include

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

What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's

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

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

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

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

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