Question 1

When the real interest rate is high,there are greater incentives to borrow and fewer incentives to lend.

Accepted Answer

A) True 
 B)False

Question 2

(I)A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment.
(II)A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount (face or par value)is repaid.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 3

The interest rate that is adjusted for actual changes in the price level is called the

Accepted Answer

A)  ex post real interest rate. 
B)  expected interest rate. 
C)  ex ante real interest rate. 
D)  none of the above. 
A)  ex post real interest rate. 
B)  expected interest rate. 
C)  ex ante real interest rate. 
D)  none of the above.

Question 4

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 above 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 above the par value. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 5

(I)The average lifetime of a debt security's stream of payments is called duration.
(II)The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 6

(I)Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II)Prices and returns for long-term bonds are less volatile than those for shorter-term bonds.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

When the real interest rate is high,there are greater incentives to borrow and fewer incentives to lend.

(I)A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment. (II)A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount (face or par value)is repaid.

The interest rate that is adjusted for actual changes in the price level is called the

Which of the following are true for a coupon bond?

(I)The average lifetime of a debt security's stream of payments is called duration. (II)The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.

(I)Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II)Prices and returns for long-term bonds are less volatile than those for shorter-term bonds.

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

Filters

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

When the real interest rate is high,there are greater incentives to borrow and fewer incentives to lend.

(I)A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment. (II)A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount (face or par value)is repaid.

The interest rate that is adjusted for actual changes in the price level is called the

Which of the following are true for a coupon bond?

(I)The average lifetime of a debt security's stream of payments is called duration. (II)The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.

(I)Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II)Prices and returns for long-term bonds are less volatile than those for shorter-term bonds.

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

Filters