Question 1

A ________ is bought at a price below its face value,and the ________ value is repaid at the maturity date.

Accepted Answer

A) coupon bond; discount 
B) discount bond; discount 
C) coupon bond; face 
D) discount bond; face 
A) coupon bond; discount 
B) discount bond; discount 
C) coupon bond; face 
D) discount bond; face

Question 2

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

Accepted Answer

A) simple loan. 
B) fixed-payment loan. 
C) coupon bond. 
D) discount bond. 
A) simple loan. 
B) fixed-payment loan. 
C) coupon bond. 
D) discount bond.

Question 3

Comparing a discount bond and a coupon bond with the same maturity,

Accepted Answer

A) the coupon bond has the greater effective maturity. 
B) the discount bond has the greater effective maturity. 
C) the effective maturity cannot be calculated for a coupon bond. 
D) the effective maturity cannot be calculated for a discount bond. 
A) the coupon bond has the greater effective maturity. 
B) the discount bond has the greater effective maturity. 
C) the effective maturity cannot be calculated for a coupon bond. 
D) the effective maturity cannot be calculated for a discount bond.

Question 4

Which of the following are generally true of all bonds?

Accepted Answer

A) The longer a bond's maturity,the greater 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 short-term bonds are more volatile than those for longer term bonds. 
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period. 
A) The longer a bond's maturity,the greater 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 short-term bonds are more volatile than those for longer term bonds. 
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Question 5

The ________ is below the coupon rate when the bond price is ________ its par value.

Accepted Answer

A) yield to maturity; above 
B) yield to maturity; below 
C) discount rate; above 
D) discount rate; below 
A) yield to maturity; above 
B) yield to maturity; below 
C) discount rate; above 
D) discount rate; below

Question 6

Which of the following are generally true of bonds?

Accepted Answer

A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. 
B) A rise in interest rates is associated with a fall in bond prices,resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. 
C) The longer a bond's maturity,the smaller is the size of the price change associated with an interest rate change. 
D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds. 
A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. 
B) A rise in interest rates is associated with a fall in bond prices,resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. 
C) The longer a bond's maturity,the smaller is the size of the price change associated with an interest rate change. 
D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Question 7

If the interest rate is 5%,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%? Why?

Accepted Answer

PV = $1,050/(1.+.05)+ $1,102.5

Question 8

Assuming the same coupon rate and maturity length,when the interest rate on a Treasury Inflation Protected Security is 3 percent,and the yield on a nonindexed Treasury bond is 8 percent,the expected rate of inflation is

Accepted Answer

A) 3 percent. 
B) 5 percent. 
C) 8 percent. 
D) 11 percent. 
A) 3 percent. 
B) 5 percent. 
C) 8 percent. 
D) 11 percent.

Question 9

In the United States during the late 1970s,the nominal interest rates were quite high,but the real interest rates were negative.From the Fisher equation,we can conclude that expected inflation in the United States during this period was

Accepted Answer

A) irrelevant. 
B) low. 
C) negative. 
D) high. 
A) irrelevant. 
B) low. 
C) negative. 
D) high.

Question 10

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of

Accepted Answer

A) 8 percent. 
B) 10 percent. 
C) 12 percent. 
D) 14 percent. 
A) 8 percent. 
B) 10 percent. 
C) 12 percent. 
D) 14 percent.

Question 11

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

Accepted Answer

A) A 5 percent coupon bond with a price of $600 
B) A 5 percent coupon bond with a price of $800 
C) A 5 percent coupon bond with a price of $1,000 
D) A 5 percent coupon bond with a price of $1,200 
A) A 5 percent coupon bond with a price of $600 
B) A 5 percent coupon bond with a price of $800 
C) A 5 percent coupon bond with a price of $1,000 
D) A 5 percent coupon bond with a price of $1,200

Question 12

If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

Accepted Answer

A) 9 percent 
B) 10 percent 
C) 11 percent 
D) 12 percent 
A) 9 percent 
B) 10 percent 
C) 11 percent 
D) 12 percent

Question 13

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.

Accepted Answer

Even though the nominal rate f

Question 14

The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

Accepted Answer

A) initial price. 
B) face value. 
C) interest rate. 
D) coupon rate. 
A) initial price. 
B) face value. 
C) interest rate. 
D) coupon rate.

Question 15

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 16

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

Accepted Answer

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

Question 17

Which of the following $5,000 face-value securities has the highest yield to maturity?

Accepted Answer

A) A 6 percent coupon bond selling for $5,000 
B) A 6 percent coupon bond selling for $5,500 
C) A 10 percent coupon bond selling for $5,000 
D) A 12 percent coupon bond selling for $4,500 
A) A 6 percent coupon bond selling for $5,000 
B) A 6 percent coupon bond selling for $5,500 
C) A 10 percent coupon bond selling for $5,000 
D) A 12 percent coupon bond selling for $4,500

Question 18

With an interest rate of 6 percent,the present value of $100 next year is approximately

Accepted Answer

A) $106. 
B) $100. 
C) $94. 
D) $92. 
A) $106. 
B) $100. 
C) $94. 
D) $92.

Question 19

There is ________ for any bond whose time to maturity matches the holding period.

Accepted Answer

A) no interest-rate risk 
B) a large interest-rate risk 
C) rate-of-return risk 
D) yield-to-maturity risk 
A) no interest-rate risk 
B) a large interest-rate risk 
C) rate-of-return risk 
D) yield-to-maturity risk

Question 20

The ________ is calculated by multiplying the coupon rate times the par value of the bond.

Accepted Answer

A) present value 
B) par value 
C) coupon payment 
D) maturity payment 
A) present value 
B) par value 
C) coupon payment 
D) maturity payment

Exam 4: Understanding Interest Rates

A ________ is bought at a price below its face value,and the ________ value is repaid at the maturity date.

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

Comparing a discount bond and a coupon bond with the same maturity,

Which of the following are generally true of all bonds?

The ________ is below the coupon rate when the bond price is ________ its par value.

Which of the following are generally true of bonds?

If the interest rate is 5%,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%? Why?

Assuming the same coupon rate and maturity length,when the interest rate on a Treasury Inflation Protected Security is 3 percent,and the yield on a nonindexed Treasury bond is 8 percent,the expected rate of inflation is

In the United States during the late 1970s,the nominal interest rates were quite high,but the real interest rates were negative.From the Fisher equation,we can conclude that expected inflation in the United States during this period was

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of

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

If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.

The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

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

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

Which of the following $5,000 face-value securities has the highest yield to maturity?

With an interest rate of 6 percent,the present value of $100 next year is approximately

There is ________ for any bond whose time to maturity matches the holding period.

The ________ is calculated by multiplying the coupon rate times the par value of the bond.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

A is bought at a price below its face value,and the value is repaid at the maturity date.

The is below the coupon rate when the bond price is its par value.