Question 1

The riskiness of an asset's returns due to changes in interest rates is ________.

Accepted Answer

A)  exchange-rate risk 
B)  price risk 
C)  asset risk 
D)  interest-rate risk

Question 2

Examples of discount bonds include ________.

Accepted Answer

A)  Treasury bills 
B)  corporate bonds 
C)  coupon bonds 
D)  municipal bonds

Question 3

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of ________.

Accepted Answer

A)  5 percent 
B)  8 percent 
C)  10 percent 
D)  40 percent

Question 4

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

Question 5

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

Accepted Answer

A)  5 percent 
B)  10 percent 
C)  -5 percent 
D)  25 percent

Question 6

The interest rate on Real Return Bonds is a direct measure of ________.

Accepted Answer

A)  the real interest rate 
B)  the nominal interest rate 
C)  the rate of inflation 
D)  the rate of deflation

Question 7

The ________ interest rate is adjusted for expected changes in the price level.

Accepted Answer

A)  ex ante real 
B)  ex post real 
C)  ex post nominal 
D)  ex ante nominal

Question 8

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

Question 9

If the interest rate is 5 percent,what is the present value of a security that pays you $1,050 next year and $1,102.50 two years from now? If this security sold for $2200,is the yield to maturity greater or less than 5 percent? Why?

Accepted Answer

The answer of If the interest rate is 5 percent,what...

Question 10

A discount bond ________.

Accepted Answer

A)  pays the bondholder a fixed amount every period and the face value at maturity 
B)  pays the bondholder the face value at maturity 
C)  pays all interest and the face value at maturity 
D)  pays the face value at maturity plus any capital gain

Exam 4: Understanding Interest Rates