Question 1

Which of the following are true of coupon bonds?

Accepted Answer

A) The owner of a coupon bond receives a fixed interest payment every year until the maturity date, when the face or par value is repaid. 
B) U)S. Treasury bonds and notes are examples of coupon bonds. 
C) Corporate bonds are examples of coupon bonds. 
D) All of the above. 
E) Only A and B of the above. 
A) The owner of a coupon bond receives a fixed interest payment every year until the maturity date, when the face or par value is repaid. 
B) U)S. Treasury bonds and notes are examples of coupon bonds. 
C) Corporate bonds are examples of coupon bonds. 
D) All of the above. 
E) Only A and B of the above.

Question 2

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 3

The current yield is the best measure of an investor's return from holding a bond.

Accepted Answer

A) True 
 B)False

Question 4

The current yield is the yearly coupon payment divided by the current market price.

Accepted Answer

A) True 
 B)False

Question 5

The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the

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.

Question 6

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 7

The interest rate that financial economists consider to be the most accurate measure is the

Accepted Answer

A) current yield. 
B) yield to maturity. 
C) yield on a discount basis. 
D) coupon rate. 
A) current yield. 
B) yield to maturity. 
C) yield on a discount basis. 
D) coupon rate.

Question 8

How is a bond's current yield calculated? Why is current yield a more accurate approximation of yield to maturity for a long-term bond than for a short-term bond?

Accepted Answer

The answer of How is a bond's current yield calculated?...

Question 9

The yield to maturity on a consol bond that pays $200 yearly and sells for $1000 is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent. 
A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent.

Question 10

Which of the following $1,000 face value securities has the highest 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 11

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

Accepted Answer

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

Question 12

A bond's future payments are called its

Accepted Answer

A) cash flows. 
B) maturity values. 
C) discounted present values. 
D) yields to maturity. 
A) cash flows. 
B) maturity values. 
C) discounted present values. 
D) yields to maturity.

Question 13

A loan that requires the borrower to make the same payment every period until the maturity date is called a

Accepted Answer

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

Question 14

Which of the following are generally true of all bonds?

Accepted Answer

A) The longer a bond's maturity, the lower 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 long-term bonds are more volatile than those for shorter-term bonds. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The longer a bond's maturity, the lower 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 long-term bonds are more volatile than those for shorter-term bonds. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 15

(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 16

Increasing duration implies that interest-rate risk has increased.

Accepted Answer

A) True 
 B)False

Question 17

(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.

Question 18

Which of the following $1,000 face value securities has the highest 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 12 percent coupon bond selling for $1,000 
D) A 12 percent coupon bond selling for $1,100 
A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 12 percent coupon bond selling for $1,000 
D) A 12 percent coupon bond selling for $1,100

Question 19

The current yield on a coupon bond is the bond's ________ divided by its ________.

Accepted Answer

A) annual coupon payment; price 
B) annual coupon payment; face value 
C) annual return; price 
D) annual return; face value 
A) annual coupon payment; price 
B) annual coupon payment; face value 
C) annual return; price 
D) annual return; face value

Question 20

(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.

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

Which of the following are true of coupon bonds?

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

The current yield is the best measure of an investor's return from holding a bond.

The current yield is the yearly coupon payment divided by the current market price.

The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the

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

The interest rate that financial economists consider to be the most accurate measure is the

How is a bond's current yield calculated? Why is current yield a more accurate approximation of yield to maturity for a long-term bond than for a short-term bond?

The yield to maturity on a consol bond that pays $200 yearly and sells for $1000 is

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

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

A bond's future payments are called its

A loan that requires the borrower to make the same payment every period until the maturity date is called a

Which of the following are generally true of all bonds?

(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.

Increasing duration implies that interest-rate risk has increased.

(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.

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

The current yield on a coupon bond is the bond's ________ divided by its ________.

(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.

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters

The current yield on a coupon bond is the bond's divided by its .