Question 1

The amount of funds the borrower receives from the lender with a simple loan is called the

Accepted Answer

A) principal. 
B) equity. 
C) maturity. 
D) collateral. 
A) principal. 
B) equity. 
C) maturity. 
D) collateral. A

Question 2

Which of the following is NOT fixed on a coupon bond?

Accepted Answer

A) Coupon 
B) Coupon rate 
C) Market price 
D) Par value 
A) Coupon 
B) Coupon rate 
C) Market price 
D) Par value C

Question 3

Suppose Matt's New Cars issues a one-year discount bond with a face value of $10,000, and received $9259, repaying $10,000 after one year. The interest rate on this bond would be

Accepted Answer

A) 2.6%. 
B) 7.41% 
C) 8%. 
D) 10%. 
A) 2.6%. 
B) 7.41% 
C) 8%. 
D) 10%. C

Question 4

$1 received n years from now has a value today of

Accepted Answer

A) ($1 + i)/i. 
B) $1/(1 + i). 
C) ($1 + i   /i. 
D) $1/(1 + i  
  . 
A) ($1 + i)/i. 
B) $1/(1 + i). 
C) ($1 + i   /i. 
D) $1/(1 + i  
  .

Question 5

A discount bond resembles a simple loan in that

Accepted Answer

A) the interest on neither is taxable. 
B) the borrower repays in a single payment. 
C) both represent assets to the borrowers who issue them. 
D) both have par values greater than their face values. 
A) the interest on neither is taxable. 
B) the borrower repays in a single payment. 
C) both represent assets to the borrowers who issue them. 
D) both have par values greater than their face values.

Question 6

The most common type of simple loan is a(an)

Accepted Answer

A) automobile loan from a bank. 
B) mortgage loan from a bank. 
C) commercial loan from a bank. 
D) corporate bond. 
A) automobile loan from a bank. 
B) mortgage loan from a bank. 
C) commercial loan from a bank. 
D) corporate bond.

Question 7

The Fisher hypothesis holds that

Accepted Answer

A) in the long run the nominal interest rate equals the real interest rate. 
B) the yield to maturity equals the real interest rate. 
C) the nominal interest rate equals the coupon rate if the bond is held to maturity. 
D) the nominal interest rate rises or falls point-for-point with expected inflation. 
A) in the long run the nominal interest rate equals the real interest rate. 
B) the yield to maturity equals the real interest rate. 
C) the nominal interest rate equals the coupon rate if the bond is held to maturity. 
D) the nominal interest rate rises or falls point-for-point with expected inflation.

Question 8

U.S. Treasury bonds

Accepted Answer

A) carry no risk of default and are therefore not risky investments. 
B) have constant yields to maturity and are therefore not risky investments. 
C) have constant coupon rates and are therefore not risky investments. 
D) are subject to fluctuations in their market prices and are therefore risky investments. 
A) carry no risk of default and are therefore not risky investments. 
B) have constant yields to maturity and are therefore not risky investments. 
C) have constant coupon rates and are therefore not risky investments. 
D) are subject to fluctuations in their market prices and are therefore risky investments.

Question 9

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Accepted Answer

A) 6% 
B) 6.38% 
C) 5.3% 
D) Not enough information has been provided to determine the answer. 
A) 6% 
B) 6.38% 
C) 5.3% 
D) Not enough information has been provided to determine the answer.

Question 10

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant. At the end of one year Harry's Restaurant will pay First National

Accepted Answer

A) $934.58. 
B) $1007. 
C) $1700. 
D) $1070. 
A) $934.58. 
B) $1007. 
C) $1700. 
D) $1070.

Question 11

Which of the following is NOT true of a fixed payment loan?

Accepted Answer

A) The borrower is required to make regular periodic payments to the lender. 
B) The payments made by the borrower include both interest and principal. 
C) The borrower is left with a substantial unpaid principal at the maturity of the loan. 
D) A home mortgage is an example of fixed payment loan. 
A) The borrower is required to make regular periodic payments to the lender. 
B) The payments made by the borrower include both interest and principal. 
C) The borrower is left with a substantial unpaid principal at the maturity of the loan. 
D) A home mortgage is an example of fixed payment loan.

Question 12

Suppose that a coupon bond is listed in The Wall Street Journal as having a coupon rate of 8.25% and a bid price of 120:19. Its current yield is

Accepted Answer

A) 6.84%. 
B) 6.86%. 
C) 8.50%. 
D) 8.52%. 
A) 6.84%. 
B) 6.86%. 
C) 8.50%. 
D) 8.52%.

Question 13

At an interest rate of 6%, what is the present value of $10,000 to be received five years from now?

Accepted Answer

A) $5000 
B) $7473 
C) $10,000 
D) $13,382 
A) $5000 
B) $7473 
C) $10,000 
D) $13,382

Question 14

The concept of present value

Accepted Answer

A) reveals that discount bonds have higher interest rates than coupon bonds. 
B) reveals that fixed payment loans have higher interest rates than discount bonds. 
C) is useful in comparing interest rates for different financial instruments. 
D) shows that it is unlikely that a simple loan will have a lower interest rate than a discount bond. 
A) reveals that discount bonds have higher interest rates than coupon bonds. 
B) reveals that fixed payment loans have higher interest rates than discount bonds. 
C) is useful in comparing interest rates for different financial instruments. 
D) shows that it is unlikely that a simple loan will have a lower interest rate than a discount bond.

Question 15

We would expect yields on long-term corporate bonds

Accepted Answer

A) to always be equal the coupon rate on those bonds. 
B) to be far more stable than their market prices. 
C) to vary inversely with their par values. 
D) to always be higher than the yields on long-term U.S. Treasury bonds. 
A) to always be equal the coupon rate on those bonds. 
B) to be far more stable than their market prices. 
C) to vary inversely with their par values. 
D) to always be higher than the yields on long-term U.S. Treasury bonds.

Question 16

A one-year discount bond with a par value of $1000 sold today, at issuance, for $943 has a yield to maturity of

Accepted Answer

A) 4.30% 
B) 5.70% 
C) 6.04% 
D) 9.43% 
A) 4.30% 
B) 5.70% 
C) 6.04% 
D) 9.43%

Question 17

Suppose First National Bank makes a one-year simple loan of $1000 to Harry's Restaurant. If at the end of one year Harry's Restaurant pays First National $1400, then the interest rate on this loan must have been

Accepted Answer

A) 0.04%. 
B) 0.4%. 
C) 1.04%. 
D) 4%. 
A) 0.04%. 
B) 0.4%. 
C) 1.04%. 
D) 4%.

Question 18

The current yield is

Accepted Answer

A) always equal to the yield to maturity on a coupon bond. 
B) always equal to the coupon rate on a coupon bond. 
C) roughly equal to the yield to maturity on very long-term bonds. 
D) roughly equal to the yield to maturity on a short-term bond. 
A) always equal to the yield to maturity on a coupon bond. 
B) always equal to the coupon rate on a coupon bond. 
C) roughly equal to the yield to maturity on very long-term bonds. 
D) roughly equal to the yield to maturity on a short-term bond.

Question 19

If the nominal interest rate is 5%, the tax rate is 25%, and the expected inflation rate is 3%, what is the real after-tax return?

Accepted Answer

A) -0.75% 
B) 0.75% 
C) 1.5% 
D) 6.75% 
A) -0.75% 
B) 0.75% 
C) 1.5% 
D) 6.75%

Question 20

Which of the following is NOT a fixed payment loan?

Accepted Answer

A) A home mortgage 
B) A car loan 
C) A U.S. Treasury note 
D) A student loan 
A) A home mortgage 
B) A car loan 
C) A U.S. Treasury note 
D) A student loan

Exam 4: Interest Rates and Rates of Return

The amount of funds the borrower receives from the lender with a simple loan is called the

Which of the following is NOT fixed on a coupon bond?

Suppose Matt's New Cars issues a one-year discount bond with a face value of $10,000, and received $9259, repaying $10,000 after one year. The interest rate on this bond would be

$1 received n years from now has a value today of

A discount bond resembles a simple loan in that

The most common type of simple loan is a(an)

The Fisher hypothesis holds that

U.S. Treasury bonds

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant. At the end of one year Harry's Restaurant will pay First National

Which of the following is NOT true of a fixed payment loan?

Suppose that a coupon bond is listed in The Wall Street Journal as having a coupon rate of 8.25% and a bid price of 120:19. Its current yield is

At an interest rate of 6%, what is the present value of $10,000 to be received five years from now?

The concept of present value

We would expect yields on long-term corporate bonds

A one-year discount bond with a par value of $1000 sold today, at issuance, for $943 has a yield to maturity of

Suppose First National Bank makes a one-year simple loan of $1000 to Harry's Restaurant. If at the end of one year Harry's Restaurant pays First National $1400, then the interest rate on this loan must have been

The current yield is

If the nominal interest rate is 5%, the tax rate is 25%, and the expected inflation rate is 3%, what is the real after-tax return?

Which of the following is NOT a fixed payment loan?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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