Question 1

Why may a bond's rate of return differ from its yield to maturity?

Accepted Answer

Bonds Rate of Return or Coupon Rate is t

Question 2

If you expect the inflation rate to be 15 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)  7 percent. 
B)  22 percent. 
C)  -15 percent. 
D)  -8 percent. 
E)  none of the above. 
A)  7 percent. 
B)  22 percent. 
C)  -15 percent. 
D)  -8 percent. 
E)  none of the above.

Question 3

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 one year later?

Accepted Answer

A)  5 percent 
B)  10 percent 
C)  -5 percent 
D)  25 percent 
E)  None of the above 
A)  5 percent 
B)  10 percent 
C)  -5 percent 
D)  25 percent 
E)  None of the above

Question 4

In which of the following situations would you prefer to be making a loan?

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 5

When the lender provides the borrower with an amount of funds that must be repaid to the lender at the maturity date,along with an additional payment for the interest,it is called a ________.

Accepted Answer

A)  fixed-payment loan 
B)  discount loan 
C)  simple loan 
D)  none of the above 
A)  fixed-payment loan 
B)  discount loan 
C)  simple loan 
D)  none of the above

Question 6

The concept of ________ is based on the 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 7

Why are long-term bonds more risky than short-term bonds?

Accepted Answer

Long-term bonds are generally considered

Question 8

The change in the bond's price relative to the initial purchase price is

Accepted Answer

A)  the current yield. 
B)  coupon payment. 
C)  yield to maturity. 
D)  rate of capital gain. 
A)  the current yield. 
B)  coupon payment. 
C)  yield to maturity. 
D)  rate of capital gain.

Question 9

Unless a bond defaults,an investor cannot lose money investing in bonds.

Accepted Answer

A) True 
 B)False

Question 10

The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later 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 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 negatively related. 
C)  The yield to maturity is greater than the coupon rate when the bond price is below the par value. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
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 negatively related. 
C)  The yield to maturity is greater than the coupon rate when the bond price is below the par value. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 12

What concept is used to value a bond?

Accepted Answer

Bond valuation indudes calculating the p

Question 13

What is the relationship between the current yield and yield to maturity for a bond?

Accepted Answer

Current Yield

Calculation of current yi

Question 14

A discount bond

Accepted Answer

A)  is also called a coupon bond. 
B)  is also called a zero-coupon bond. 
C)  is also called a fixed-payment bond. 
D)  is also called a corporate bond. 
A)  is also called a coupon bond. 
B)  is also called a zero-coupon bond. 
C)  is also called a fixed-payment bond. 
D)  is also called a corporate bond.

Question 15

Describe the cash flows received from owning a coupon bond.

Accepted Answer

A coupon bond, also referred to as a bea

Question 16

The process of calculating what dollars received in the future are worth today is called

Accepted Answer

A)  calculating the yield to maturity. 
B)  discounting the future. 
C)  compounding the future. 
D)  compounding the present. 
A)  calculating the yield to maturity. 
B)  discounting the future. 
C)  compounding the future. 
D)  compounding the present.

Question 17

The riskiness of an asset's return that results from interest rate changes is called

Accepted Answer

A)  interest-rate risk. 
B)  coupon-rate risk. 
C)  reinvestment risk. 
D)  yield-to-maturity risk. 
A)  interest-rate risk. 
B)  coupon-rate risk. 
C)  reinvestment risk. 
D)  yield-to-maturity risk.

Question 18

With an interest rate of 10 percent,the present value of a security that pays $1,100 next year and $1,460 four years from now is approximately

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $2,560. 
D)  $3,000. 
A)  $1,000. 
B)  $2,000. 
C)  $2,560. 
D)  $3,000.

Question 19

With an interest rate of 8 percent,the present value of $100 received one year from now is approximately

Accepted Answer

A)  $93. 
B)  $96. 
C)  $100. 
D)  $108. 
A)  $93. 
B)  $96. 
C)  $100. 
D)  $108.

Question 20

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

Accepted Answer

A)  simple interest rate 
B)  discount rate 
C)  yield to maturity 
D)  real interest rate 
A)  simple interest rate 
B)  discount rate 
C)  yield to maturity 
D)  real interest rate

Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation?

Why may a bond's rate of return differ from its yield to maturity?

If you expect the inflation rate to be 15 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

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 one year later?

In which of the following situations would you prefer to be making a loan?

When the lender provides the borrower with an amount of funds that must be repaid to the lender at the maturity date,along with an additional payment for the interest,it is called a ________.

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

Why are long-term bonds more risky than short-term bonds?

The change in the bond's price relative to the initial purchase price is

Unless a bond defaults,an investor cannot lose money investing in bonds.

The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later is

Which of the following are true for a coupon bond?

What concept is used to value a bond?

What is the relationship between the current yield and yield to maturity for a bond?

A discount bond

Describe the cash flows received from owning a coupon bond.

The process of calculating what dollars received in the future are worth today is called

The riskiness of an asset's return that results from interest rate changes is called

With an interest rate of 10 percent,the present value of a security that pays $1,100 next year and $1,460 four years from now is approximately

With an interest rate of 8 percent,the present value of $100 received one year from now is approximately

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

Why Study Financial Markets and Institutions?

Overview of the Financial System

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

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