Question 1

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 2

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 3

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 4

The ________ is calculated by multiplying the coupon rate times the par value of the bond.

Accepted Answer

A)  present value 
B)  par value 
C)  coupon payment 
D)  maturity payment 
A)  present value 
B)  par value 
C)  coupon payment 
D)  maturity payment

Question 5

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 6

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 7

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 8

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 9

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 10

If a $1000 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 11

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 12

When the ________ interest rate is low,there are greater incentives to ________ and fewer incentives to ________.

Accepted Answer

A)  nominal; lend; borrow 
B)  real; lend; borrow 
C)  real; borrow; lend 
D)  market; lend; borrow 
A)  nominal; lend; borrow 
B)  real; lend; borrow 
C)  real; borrow; lend 
D)  market; lend; borrow

Question 13

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 14

The ________ is below the coupon rate when the bond price is ________ its par value.

Accepted Answer

A)  yield to maturity; above 
B)  yield to maturity; below 
C)  discount rate; above 
D)  discount rate; below 
A)  yield to maturity; above 
B)  yield to maturity; below 
C)  discount rate; above 
D)  discount rate; below

Question 15

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 16

Which of the following are generally true of all bonds?

Accepted Answer

A)  The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. 
B)  Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. 
C)  Prices and returns for short-term bonds are more volatile than those for longer term bonds. 
D)  A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period. 
A)  The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. 
B)  Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. 
C)  Prices and returns for short-term bonds are more volatile than those for longer term bonds. 
D)  A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Question 17

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 18

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 19

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 20

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.

Exam 4: Understanding Interest Rates

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

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

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

The ________ is calculated by multiplying the coupon rate times the par value of the bond.

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

An equal increase in all bond interest rates

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

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

If a $1000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

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

When the ________ interest rate is low,there are greater incentives to ________ and fewer incentives to ________.

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

The ________ is below the coupon rate when the bond price is ________ its par value.

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

Which of the following are generally true of all bonds?

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

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

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

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

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

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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

The ISLM Model

Filters

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

When the interest rate is low,there are greater incentives to and fewer incentives to .

The is below the coupon rate when the bond price is its par value.

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