Question 1

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 2

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 3

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 4

Which of the following are true concerning the distinction between interest rates and returns?

Accepted Answer

A)  The rate of return on a bond will not necessarily equal the interest rate on that bond. 
B)  The return can be expressed as the difference between the current yield and the rate of capital gains. 
C)  The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. 
D)  The return can be expressed as the sum of the discount yield and the rate of capital gains. 
A)  The rate of return on a bond will not necessarily equal the interest rate on that bond. 
B)  The return can be expressed as the difference between the current yield and the rate of capital gains. 
C)  The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. 
D)  The return can be expressed as the sum of the discount yield and the rate of capital gains.

Question 5

If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration,what is the duration of the portfolio?

Accepted Answer

A)  12 years 
B)  7 years 
C)  6 years 
D)  5 years 
A)  12 years 
B)  7 years 
C)  6 years 
D)  5 years

Question 6

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 7

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

Accepted Answer

A)  2.5 percent. 
B)  5 percent. 
C)  7.5 percent. 
D)  10 percent. 
A)  2.5 percent. 
B)  5 percent. 
C)  7.5 percent. 
D)  10 percent.

Question 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

All of the following are examples of coupon bonds except

Accepted Answer

A)  Corporate bonds. 
B)  U.S. Treasury bills. 
C)  U.S. Treasury notes. 
D)  U.S. Treasury bonds. 
A)  Corporate bonds. 
B)  U.S. Treasury bills. 
C)  U.S. Treasury notes. 
D)  U.S. Treasury bonds.

Question 16

Which of the following are generally true of bonds?

Accepted Answer

A)  The only bond whose return equals the initial yield to maturity is one whose 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)  The only bond whose return equals the initial yield to maturity is one whose 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 17

The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

Accepted Answer

A)  initial price. 
B)  face value. 
C)  interest rate. 
D)  coupon rate. 
A)  initial price. 
B)  face value. 
C)  interest rate. 
D)  coupon rate.

Question 18

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 19

Economists consider the ________ to be the most accurate measure of interest rates.

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 20

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.

Exam 4: Understanding Interest Rates

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

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

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

Which of the following are true concerning the distinction between interest rates and returns?

If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration,what is the duration of the portfolio?

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?

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

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

The nominal interest rate minus the expected rate of inflation

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

Which of the following are true for a coupon bond?

Examples of discount bonds include

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

The interest rate on a consol equals the

All of the following are examples of coupon bonds except

Which of the following are generally true of bonds?

The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

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

Economists consider the ________ to be the most accurate measure of interest rates.

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

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

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