Question 1

What is the present value of a $15,000 face value STRIPS with 8 years to maturity and a yield to maturity of 5.25%?

Accepted Answer

A) $6,615.12 
B) $9,723.86 
C) $9,909.24 
D) $9,960.00 
E) $12,191.75 
A) $6,615.12 
B) $9,723.86 
C) $9,909.24 
D) $9,960.00 
E) $12,191.75

Question 2

The Treasury yield curve is a graph that plots Treasury yields against which one of the following?

Accepted Answer

A) corporate bond yields 
B) Fed funds rate 
C) maturities 
D) inflation rates 
E) S&P 500 yield 
A) corporate bond yields 
B) Fed funds rate 
C) maturities 
D) inflation rates 
E) S&P 500 yield

Question 3

A $1,000 face value, 240-day bond is quoted at a bank discount yield of 3.3%. What is the current bond price?

Accepted Answer

A) $957.60 
B) $960.09 
C) $978.00 
D) $982.02 
E) $988.73 
A) $957.60 
B) $960.09 
C) $978.00 
D) $982.02 
E) $988.73

Question 4

Which one of the following rates is typically quoted?

Accepted Answer

A) nominal 
B) deflated 
C) inflated 
D) real 
E) indexed 
A) nominal 
B) deflated 
C) inflated 
D) real 
E) indexed

Question 5

You want to earn a real rate of return of 3.75% at a time when the inflation rate is 2.33%. What is the approximate nominal rate that you must earn?

Accepted Answer

A) 5.78% 
B) 5.96% 
C) 6.08% 
D) 6.14% 
E) 6.28% 
A) 5.78% 
B) 5.96% 
C) 6.08% 
D) 6.14% 
E) 6.28%

Question 6

Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank. Which one of the following interest rates will be charged on this loan?

Accepted Answer

A) money market 
B) Federal funds 
C) discount 
D) prime 
E) Treasury bill 
A) money market 
B) Federal funds 
C) discount 
D) prime 
E) Treasury bill

Question 7

A Treasury bill has a face value of $100,000, a price of $99,797.12, and matures in 35 days. What is the bond equivalent asked yield?

Accepted Answer

A) 1.98% 
B) 2.12% 
C) 2.28% 
D) 3.67% 
E) 3.74% 
A) 1.98% 
B) 2.12% 
C) 2.28% 
D) 3.67% 
E) 3.74%

Question 8

Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?

Accepted Answer

A) commercial paper 
B) U.S. Treasury bill 
C) banker's acceptance 
D) Eurodollar money market 
E) certificates of deposit 
A) commercial paper 
B) U.S. Treasury bill 
C) banker's acceptance 
D) Eurodollar money market 
E) certificates of deposit

Question 9

The variable ƒ1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Accepted Answer

A) based on the prior one-year rate. 
B) at 1%. 
C) based on a 1% increase from the current rate. 
D) commencing in one year. 
E) based on a 1% probability of occurrence. 
A) based on the prior one-year rate. 
B) at 1%. 
C) based on a 1% increase from the current rate. 
D) commencing in one year. 
E) based on a 1% probability of occurrence.

Question 10

Which of the following will increase the price of a money market instrument computed using a discount yield?
I. increase in discount yield
II. decrease in discount yield
III. increase in days to maturity
IV. decrease in days to maturity

Accepted Answer

A) I only 
B) I and III only 
C) I and IV only 
D) II and III only 
E) II and IV only 
A) I only 
B) I and III only 
C) I and IV only 
D) II and III only 
E) II and IV only

Question 11

A bond has a nominal rate of return of 5.87% and the inflation rate is 4.13%. What is the approximate real rate?

Accepted Answer

A) 1.62% 
B) 1.70% 
C) 1.74% 
D) 1.83% 
E) 1.88% 
A) 1.62% 
B) 1.70% 
C) 1.74% 
D) 1.83% 
E) 1.88%

Question 12

Your credit card has an annual percentage rate of 17.89% and compounds interest daily. What is the effective annual rate?

Accepted Answer

A) 19.47% 
B) 19.58% 
C) 19.82% 
D) 19.94% 
E) 20.80% 
A) 19.47% 
B) 19.58% 
C) 19.82% 
D) 19.94% 
E) 20.80%

Question 13

A $100,000 or more term deposit at a bank is called which one of the following?

Accepted Answer

A) interbank deposit 
B) bankers' acceptance 
C) collateralized deposit 
D) call bond 
E) certificate of deposit 
A) interbank deposit 
B) bankers' acceptance 
C) collateralized deposit 
D) call bond 
E) certificate of deposit

Question 14

You want to earn a real rate of return of 4.00% at a time when the inflation rate is 2.05%. What is the approximate nominal rate that you must earn?

Accepted Answer

A) 5.75% 
B) 5.95% 
C) 6.05% 
D) 6.15% 
E) 6.25% 
A) 5.75% 
B) 5.95% 
C) 6.05% 
D) 6.15% 
E) 6.25%

Question 15

Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?

Accepted Answer

A) lower the tax rate 
B) lower the discount rate 
C) increase the call rate 
D) increase the tax rate 
E) increase the discount rate 
A) lower the tax rate 
B) lower the discount rate 
C) increase the call rate 
D) increase the tax rate 
E) increase the discount rate

Question 16

Which one of the following is a short-term debt instrument issued by the U.S. Treasury?

Accepted Answer

A) Freddie Mac 
B) Ginnie Mae 
C) T-note 
D) T-bill 
E) T-bond 
A) Freddie Mac 
B) Ginnie Mae 
C) T-note 
D) T-bill 
E) T-bond

Question 17

Which one of the following abbreviations is the interest rate that international banks charge one another for overnight Eurodollar loans?

Accepted Answer

A) EIOEL 
B) EUDOR 
C) LEDOR 
D) EDBOR 
E) LIBOR 
A) EIOEL 
B) EUDOR 
C) LEDOR 
D) EDBOR 
E) LIBOR

Question 18

Which one of the following is defined as a forward rate?

Accepted Answer

A) rate agreed upon today for a long-term loan 
B) interest rate quoted today which will apply to all loans made this week 
C) interest rate on a loan made today that will vary as the market rate varies 
D) interest rate adjusted for the anticipated rate of inflation 
E) expected future interest rate implied by current interest rates 
A) rate agreed upon today for a long-term loan 
B) interest rate quoted today which will apply to all loans made this week 
C) interest rate on a loan made today that will vary as the market rate varies 
D) interest rate adjusted for the anticipated rate of inflation 
E) expected future interest rate implied by current interest rates

Question 19

A $60,000 face value STRIPS is quoted at 96.100. What is the dollar price?

Accepted Answer

A) $57,267.50 
B) $57,350.00 
C) $57,415.00 
D) $57,577.78 
E) $57,660.00 
A) $57,267.50 
B) $57,350.00 
C) $57,415.00 
D) $57,577.78 
E) $57,660.00

Question 20

What is the one-year interest rate one year from now if the current one-year interest rate is 3.49% and the two-year interest rate is 2.74%? Assume the rates are effective annual rates.

Accepted Answer

A) 1.54% 
B) 1.95% 
C) 2.00% 
D) 3.12% 
E) 4.25% 
A) 1.54% 
B) 1.95% 
C) 2.00% 
D) 3.12% 
E) 4.25%

Exam 9: Interest Rates

What is the present value of a $15,000 face value STRIPS with 8 years to maturity and a yield to maturity of 5.25%?

The Treasury yield curve is a graph that plots Treasury yields against which one of the following?

A $1,000 face value, 240-day bond is quoted at a bank discount yield of 3.3%. What is the current bond price?

Which one of the following rates is typically quoted?

You want to earn a real rate of return of 3.75% at a time when the inflation rate is 2.33%. What is the approximate nominal rate that you must earn?

Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank. Which one of the following interest rates will be charged on this loan?

A Treasury bill has a face value of $100,000, a price of $99,797.12, and matures in 35 days. What is the bond equivalent asked yield?

Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?

The variable ƒ1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Which of the following will increase the price of a money market instrument computed using a discount yield? I. increase in discount yield II. decrease in discount yield III. increase in days to maturity IV. decrease in days to maturity

A bond has a nominal rate of return of 5.87% and the inflation rate is 4.13%. What is the approximate real rate?

Your credit card has an annual percentage rate of 17.89% and compounds interest daily. What is the effective annual rate?

A $100,000 or more term deposit at a bank is called which one of the following?

You want to earn a real rate of return of 4.00% at a time when the inflation rate is 2.05%. What is the approximate nominal rate that you must earn?

Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?

Which one of the following is a short-term debt instrument issued by the U.S. Treasury?

Which one of the following abbreviations is the interest rate that international banks charge one another for overnight Eurodollar loans?

Which one of the following is defined as a forward rate?

A $60,000 face value STRIPS is quoted at 96.100. What is the dollar price?

What is the one-year interest rate one year from now if the current one-year interest rate is 3.49% and the two-year interest rate is 2.74%? Assume the rates are effective annual rates.

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

The variable ƒ_1,1 as used in the expectations theory is interpreted as the forward rate for one year: