Question 1

Which of the following are true for discount bonds?

Accepted Answer

A) A discount bond is bought at par. 
B) The purchaser receives the face value of the bond at the maturity date. 
C) U.S.Treasury bonds and notes are examples of discount bonds. 
D) The purchaser receives the par value at maturity plus any capital gains. 
A) A discount bond is bought at par. 
B) The purchaser receives the face value of the bond at the maturity date. 
C) U.S.Treasury bonds and notes are examples of discount bonds. 
D) The purchaser receives the par value at maturity plus any capital gains.

Question 2

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 3

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 4

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 5

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 6

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 7

The yield to maturity for a discount bond is ________ related to the current bond price.

Accepted Answer

A) negatively 
B) positively 
C) not 
D) directly 
A) negatively 
B) positively 
C) not 
D) directly

Question 8

Assuming the same coupon rate and maturity length,the difference between the yield on a Treasury Inflation Protected Security and the yield on a nonindexed Treasury security provides insight into

Accepted Answer

A) the nominal interest rate. 
B) the real interest rate. 
C) the nominal exchange rate. 
D) the expected inflation rate. 
A) the nominal interest rate. 
B) the real interest rate. 
C) the nominal exchange rate. 
D) the expected inflation rate.

Question 9

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 10

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 11

Which of the following $1,000 face-value securities has the lowest 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 15 percent coupon bond selling for $1,000 
D) A 15 percent coupon bond selling for $900 
A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 15 percent coupon bond selling for $1,000 
D) A 15 percent coupon bond selling for $900

Question 12

In Japan in 1998 and in the U.S.in 2008,interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because

Accepted Answer

A) of the high inflation rate. 
B) these bills sold at a discount from face value. 
C) the bills were denominated in small amounts and could be stored electronically. 
D) the bills were denominated in large amounts and could be stored electronically. 
A) of the high inflation rate. 
B) these bills sold at a discount from face value. 
C) the bills were denominated in small amounts and could be stored electronically. 
D) the bills were denominated in large amounts and could be stored electronically.

Question 13

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.

Question 14

If a $5,000 coupon bond has a coupon rate of 13 percent,then the coupon payment every year is

Accepted Answer

A) $650. 
B) $1,300. 
C) $130. 
D) $13. 
A) $650. 
B) $1,300. 
C) $130. 
D) $13.

Question 15

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

Accepted Answer

A) -10 percent. 
B) -5 percent. 
C) 0 percent. 
D) 5 percent. 
A) -10 percent. 
B) -5 percent. 
C) 0 percent. 
D) 5 percent.

Question 16

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

Accepted Answer

A) face value. 
B) par value. 
C) deflation. 
D) discounting the future. 
A) face value. 
B) par value. 
C) deflation. 
D) discounting the future.

Question 17

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 18

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 19

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 20

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.

Exam 4: Understanding Interest Rates

Which of the following are true for discount bonds?

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

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

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

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

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

The yield to maturity for a discount bond is ________ related to the current bond price.

Assuming the same coupon rate and maturity length,the difference between the yield on a Treasury Inflation Protected Security and the yield on a nonindexed Treasury security provides insight into

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

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

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

In Japan in 1998 and in the U.S.in 2008,interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because

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

If a $5,000 coupon bond has a coupon rate of 13 percent,then the coupon payment every year is

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

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

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

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

Examples of discount bonds include

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 and the Subprime Meltdown

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 for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

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