Question 1

A $50,000 face value bond matures in 75 days and has a bank discount yield of 3.75%. What is the current value of the bond?

Accepted Answer

A) $49,392.19 
B) $49,473.14 
C) $49,486.47 
D) $49,571.11 
E) $49,609.38 
A) $49,392.19 
B) $49,473.14 
C) $49,486.47 
D) $49,571.11 
E) $49,609.38

Question 2

Based solely on the maturity preference theory, long-term interest rates:

Accepted Answer

A) should equal short-term rates. 
B) are unrelated to short-term rates. 
C) may be higher than or lower than short-term rates. 
D) should be lower than short-term rates. 
E) should be higher than short-term rates. 
A) should equal short-term rates. 
B) are unrelated to short-term rates. 
C) may be higher than or lower than short-term rates. 
D) should be lower than short-term rates. 
E) should be higher than short-term rates.

Question 3

Consider a money market instrument with 50 days to maturity and a quoted ask price of 98. Which two of the following statements are correct as they relate to this instrument?
I. The bond equivalent yield is an effective annual rate.
II. The bank discount rate is lower than the bond equivalent yield.
III. The bank discount rate is an effective annual rate.
IV. The bond equivalent yield is lower than the effective annual rate.

Accepted Answer

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

Question 4

The market rate on a bond fell from 5.76% to 5.73%. This is a decline of how many basis points?

Accepted Answer

A) .003 
B) .0003 
C) .03 
D) .3 
E) 3 
A) .003 
B) .0003 
C) .03 
D) .3 
E) 3

Question 5

You want to purchase a security that will pay you $1,000 five years from now. If you want to earn an annual nominal rate of 5.5%, how much should you pay for this investment today?

Accepted Answer

A) $727.41 
B) $737.46 
C) $741.41 
D) $743.51 
E) $765.13 
A) $727.41 
B) $737.46 
C) $741.41 
D) $743.51 
E) $765.13

Question 6

A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50%. What is the current dollar price of this security?

Accepted Answer

A) $21,199.68 
B) $23,206.44 
C) $25,038.18 
D) $26,141.41 
E) $28,809.18 
A) $21,199.68 
B) $23,206.44 
C) $25,038.18 
D) $26,141.41 
E) $28,809.18

Question 7

Which of the following holds that the general level of nominal interest rates follows the general level of inflation?

Accepted Answer

A) market rate theory 
B) market yield theory 
C) Fisher hypothesis 
D) expectations theory 
E) rational rate hypothesis 
A) market rate theory 
B) market yield theory 
C) Fisher hypothesis 
D) expectations theory 
E) rational rate hypothesis

Question 8

Which one of the following best describes a real interest rate?

Accepted Answer

A) current rate on a U.S. Treasury bill 
B) nominal rate minus the risk premium on an individual security 
C) market return minus the risk-free rate 
D) nominal rate minus inflation 
E) historical rate rather than a projected rate 
A) current rate on a U.S. Treasury bill 
B) nominal rate minus the risk premium on an individual security 
C) market return minus the risk-free rate 
D) nominal rate minus inflation 
E) historical rate rather than a projected rate

Question 9

A pure discount security is an interest-bearing asset that pays:

Accepted Answer

A) interest on a semi-annual basis. 
B) interest on an annual basis. 
C) a single payment at maturity. 
D) no interest. 
E) a variable-rate interest. 
A) interest on a semi-annual basis. 
B) interest on an annual basis. 
C) a single payment at maturity. 
D) no interest. 
E) a variable-rate interest.

Question 10

A $43,000 face value bond will mature in 75 days and has a bank discount yield of 2.35%. What is the current value of the bond?

Accepted Answer

A) $42,342.89 
B) $42,583.23 
C) $42,673.13 
D) $42,712.32 
E) $42,789.48 
A) $42,342.89 
B) $42,583.23 
C) $42,673.13 
D) $42,712.32 
E) $42,789.48

Question 11

U.S. Treasury bill rates were the highest during which one of the following time periods?

Accepted Answer

A) 1930-1933 
B) 1943-1945 
C) 1979-1981 
D) 1997-1999 
E) 2002-2007 
A) 1930-1933 
B) 1943-1945 
C) 1979-1981 
D) 1997-1999 
E) 2002-2007

Question 12

A $75,000 face value STRIPS is quoted at 95.100. What is the dollar price?

Accepted Answer

A) $71,067.50 
B) $71,150.00 
C) $71,215.00 
D) $71,277.78 
E) $71,325.00 
A) $71,067.50 
B) $71,150.00 
C) $71,215.00 
D) $71,277.78 
E) $71,325.00

Question 13

The following premiums apply to a 3-month bond: interest rate risk premium = .2%; real return = 2.4%; default premium = .8%; inflation premium = 1.2%. What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

Accepted Answer

A) 1.9% 
B) 2.0% 
C) 2.1% 
D) 3.3% 
E) 3.6% 
A) 1.9% 
B) 2.0% 
C) 2.1% 
D) 3.3% 
E) 3.6%

Question 14

The following premiums apply to an 8-month bond: interest rate risk premium = .32%; liquidity premium = .44%; default premium = 1.15%; inflation premium = 2.44%; real rate = 3.20%. What is the expected nominal interest rate on an 8-month risky security given these values?

Accepted Answer

A) 5.85% 
B) 6.45% 
C) 7.55% 
D) 8.31% 
E) 9.30% 
A) 5.85% 
B) 6.45% 
C) 7.55% 
D) 8.31% 
E) 9.30%

Question 15

Which one of the following is used by Treasury dealers to indicate the price they are willing to pay to purchase a Treasury bill?

Accepted Answer

A) par rate 
B) bid discount 
C) face rate 
D) asked discount 
E) bank discount 
A) par rate 
B) bid discount 
C) face rate 
D) asked discount 
E) bank discount

Question 16

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1%?

Accepted Answer

A) $2,998.09 
B) $3,009.16 
C) $3,105.02 
D) $3,128.10 
E) $3,133.40 
A) $2,998.09 
B) $3,009.16 
C) $3,105.02 
D) $3,128.10 
E) $3,133.40

Question 17

Which of the following will increase the price of a money market instrument computed using a discount yield?
I. bank discount rate
II. bond equivalent rate
III. annual percentage rate
IV. effective annual rate

Accepted Answer

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

Question 18

Which one of the following applies to "Yankee bonds"?

Accepted Answer

A) U.S. corporate bonds that are sold internationally 
B) U.S. corporate bonds denominated in a foreign currency 
C) U.S. government bonds that are sold internationally 
D) any bond that is denominated in U.S. dollars 
E) foreign-issued bonds sold in the U.S. 
A) U.S. corporate bonds that are sold internationally 
B) U.S. corporate bonds denominated in a foreign currency 
C) U.S. government bonds that are sold internationally 
D) any bond that is denominated in U.S. dollars 
E) foreign-issued bonds sold in the U.S.

Question 19

A Treasury bill has a face value of $65,000, an asked yield of 3.05%, and matures in 60 days. What is the price of this bill?

Accepted Answer

A) $64,669.58 
B) $64,777.60 
C) $64,819.80 
D) $64,868.00 
E) $64,878.42 
A) $64,669.58 
B) $64,777.60 
C) $64,819.80 
D) $64,868.00 
E) $64,878.42

Question 20

Which one of the following is correct when computing the price of a debt security when using a discount yield?

Accepted Answer

A) The price will exceed the face value. 
B) An increase in the discount yield will increase the current price. 
C) The current price will decrease as the days to maturity decrease. 
D) The computation will be based on a 360-day year. 
E) The computation will consider leap years. 
A) The price will exceed the face value. 
B) An increase in the discount yield will increase the current price. 
C) The current price will decrease as the days to maturity decrease. 
D) The computation will be based on a 360-day year. 
E) The computation will consider leap years.

A $50,000 face value bond matures in 75 days and has a bank discount yield of 3.75%. What is the current value of the bond?

Based solely on the maturity preference theory, long-term interest rates:

The market rate on a bond fell from 5.76% to 5.73%. This is a decline of how many basis points?

You want to purchase a security that will pay you $1,000 five years from now. If you want to earn an annual nominal rate of 5.5%, how much should you pay for this investment today?

A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50%. What is the current dollar price of this security?

Which of the following holds that the general level of nominal interest rates follows the general level of inflation?

Which one of the following best describes a real interest rate?

A pure discount security is an interest-bearing asset that pays:

A $43,000 face value bond will mature in 75 days and has a bank discount yield of 2.35%. What is the current value of the bond?

U.S. Treasury bill rates were the highest during which one of the following time periods?

A $75,000 face value STRIPS is quoted at 95.100. What is the dollar price?

The following premiums apply to a 3-month bond: interest rate risk premium = .2%; real return = 2.4%; default premium = .8%; inflation premium = 1.2%. What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

The following premiums apply to an 8-month bond: interest rate risk premium = .32%; liquidity premium = .44%; default premium = 1.15%; inflation premium = 2.44%; real rate = 3.20%. What is the expected nominal interest rate on an 8-month risky security given these values?

Which one of the following is used by Treasury dealers to indicate the price they are willing to pay to purchase a Treasury bill?

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1%?

Which of the following will increase the price of a money market instrument computed using a discount yield? I. bank discount rate II. bond equivalent rate III. annual percentage rate IV. effective annual rate

Which one of the following applies to "Yankee bonds"?

A Treasury bill has a face value of $65,000, an asked yield of 3.05%, and matures in 60 days. What is the price of this bill?

Which one of the following is correct when computing the price of a debt security when using a discount yield?

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

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Exam 9: Interest Rates

A $50,000 face value bond matures in 75 days and has a bank discount yield of 3.75%. What is the current value of the bond?

Based solely on the maturity preference theory, long-term interest rates:

The market rate on a bond fell from 5.76% to 5.73%. This is a decline of how many basis points?

You want to purchase a security that will pay you $1,000 five years from now. If you want to earn an annual nominal rate of 5.5%, how much should you pay for this investment today?

A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50%. What is the current dollar price of this security?

Which of the following holds that the general level of nominal interest rates follows the general level of inflation?

Which one of the following best describes a real interest rate?

A pure discount security is an interest-bearing asset that pays:

A $43,000 face value bond will mature in 75 days and has a bank discount yield of 2.35%. What is the current value of the bond?

U.S. Treasury bill rates were the highest during which one of the following time periods?

A $75,000 face value STRIPS is quoted at 95.100. What is the dollar price?

The following premiums apply to a 3-month bond: interest rate risk premium = .2%; real return = 2.4%; default premium = .8%; inflation premium = 1.2%. What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

The following premiums apply to an 8-month bond: interest rate risk premium = .32%; liquidity premium = .44%; default premium = 1.15%; inflation premium = 2.44%; real rate = 3.20%. What is the expected nominal interest rate on an 8-month risky security given these values?

Which one of the following is used by Treasury dealers to indicate the price they are willing to pay to purchase a Treasury bill?

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1%?

Which of the following will increase the price of a money market instrument computed using a discount yield? I. bank discount rate II. bond equivalent rate III. annual percentage rate IV. effective annual rate

Which one of the following applies to "Yankee bonds"?

A Treasury bill has a face value of $65,000, an asked yield of 3.05%, and matures in 60 days. What is the price of this bill?

Which one of the following is correct when computing the price of a debt security when using a discount yield?

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