Question 1

A $7,500 face value STRIPS matures in 8 years and is currently quoted at a price of 65.24. What is the yield-to-maturity?

Accepted Answer

A) 3.21% 
B) 3.38% 
C) 4.87% 
D) 5.41% 
E) 5.76% 
A) 3.21% 
B) 3.38% 
C) 4.87% 
D) 5.41% 
E) 5.76%

Question 2

According to the expectations theory and the Fisher hypothesis, a downward-sloping term structure is indicative of which of the following based on market expectations?
I. nominal interest rates are expected to increase
II. nominal interest rates are expected to decline
III. inflation rates are expected to increase
IV. inflation rates are expected to decrease

Accepted Answer

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

Question 3

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Accepted Answer

A) expectations theory 
B) forward rate theory 
C) market hypothesis 
D) maturity preference theory 
E) Fisher hypothesis 
A) expectations theory 
B) forward rate theory 
C) market hypothesis 
D) maturity preference theory 
E) Fisher hypothesis

Question 4

How much should you be willing to pay today if you would like to earn an annual nominal rate of 4.23% on an investment that will pay you $20,000 seven years from today?

Accepted Answer

A) $14,225.23 
B) $14,230.93 
C) $14,365.85 
D) $14,965.14 
E) $27,728.78 
A) $14,225.23 
B) $14,230.93 
C) $14,365.85 
D) $14,965.14 
E) $27,728.78

Question 5

A 90-day Treasury bill has a bank discount yield of 4.2%. What is the effective annual rate?

Accepted Answer

A) 4.22% 
B) 4.25% 
C) 4.28% 
D) 4.30% 
E) 4.37% 
A) 4.22% 
B) 4.25% 
C) 4.28% 
D) 4.30% 
E) 4.37%

Question 6

Which one of the following statements is correct concerning large-denomination certificates of deposit?

Accepted Answer

A) The security can be sold to another investor. 
B) The face amount is equal to $10,000 or more. 
C) The security is a bank time deposit. 
D) The security is a form of a commercial check. 
E) The security is issued by the U.S. Treasury. 
A) The security can be sold to another investor. 
B) The face amount is equal to $10,000 or more. 
C) The security is a bank time deposit. 
D) The security is a form of a commercial check. 
E) The security is issued by the U.S. Treasury.

Question 7

A Treasury bill has a face value of $75,000, an asked yield of 3.05%, and matures in 90 days. What is the price of this bill?

Accepted Answer

A) $74,408.13 
B) $74,428.13 
C) $74,439.80 
D) $74,468.00 
E) $74,478.42 
A) $74,408.13 
B) $74,428.13 
C) $74,439.80 
D) $74,468.00 
E) $74,478.42

Question 8

Which one of the following statements is correct?

Accepted Answer

A) The yield curve relates time to maturity to interest rates on zero coupon bonds. 
B) The yield curve is based on Treasury bill yields. 
C) The term structure of interest rates is based on default-free, pure discount securities. 
D) The term structure of interest rates is based on default-free, coupon bonds. 
E) The yield curve ignores default risk while the term structure includes a default risk premium. 
A) The yield curve relates time to maturity to interest rates on zero coupon bonds. 
B) The yield curve is based on Treasury bill yields. 
C) The term structure of interest rates is based on default-free, pure discount securities. 
D) The term structure of interest rates is based on default-free, coupon bonds. 
E) The yield curve ignores default risk while the term structure includes a default risk premium.

Question 9

Which one of the following statements is correct concerning U.S. Treasury bill rates for the period 1800-2010?

Accepted Answer

A) T-bill rates never exceeded 10%. 
B) T-bill rates never exceeded T-bond rates. 
C) T-bill rates were lower than 1% for a period of time. 
D) T-bill rates were less volatile than T-bond rates. 
E) T-bill rates were the highest during the World War II years. 
A) T-bill rates never exceeded 10%. 
B) T-bill rates never exceeded T-bond rates. 
C) T-bill rates were lower than 1% for a period of time. 
D) T-bill rates were less volatile than T-bond rates. 
E) T-bill rates were the highest during the World War II years.

Question 10

A bond has a face value of $30,000 and matures in 62 days. What is the bank discount yield if the bond is currently selling for $29,750?

Accepted Answer

A) 4.67% 
B) 4.84% 
C) 5.48% 
D) 5.78% 
E) 6.03% 
A) 4.67% 
B) 4.84% 
C) 5.48% 
D) 5.78% 
E) 6.03%

Question 11

A Treasury bill has 21 days to maturity and a bank discount yield of 1.89%. What is the bond equivalent yield?

Accepted Answer

A) 1.89% 
B) 1.90% 
C) 1.92% 
D) 1.94% 
E) 1.96% 
A) 1.89% 
B) 1.90% 
C) 1.92% 
D) 1.94% 
E) 1.96%

Question 12

Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?

Accepted Answer

A) discount 
B) Fed funds 
C) prime 
D) brokerage 
E) call money 
A) discount 
B) Fed funds 
C) prime 
D) brokerage 
E) call money

Question 13

Which one of the following describes the term LIBOR?

Accepted Answer

A) London Interweb Opportunity Rate 
B) Lisbon Interbank Opportunity Rate 
C) London Interbank Opportunity Rate 
D) London Interbank Offered Rate 
E) Lisbon Interbank Offered Rate 
A) London Interweb Opportunity Rate 
B) Lisbon Interbank Opportunity Rate 
C) London Interbank Opportunity Rate 
D) London Interbank Offered Rate 
E) Lisbon Interbank Offered Rate

Question 14

The one-year interest rate is 4.80% and the two-year interest rate is 5.13%. What is the one-year interest rate one year from now? Assume the rates are effective annual rates.

Accepted Answer

A) 5.02% 
B) 5.23% 
C) 5.46% 
D) 5.51% 
E) 5.74% 
A) 5.02% 
B) 5.23% 
C) 5.46% 
D) 5.51% 
E) 5.74%

Question 15

A Treasury bill has a face value of $250,000, a bank discount yield of 2.02 percent, and matures in 32 days. What is the price of this bill?

Accepted Answer

A) $249,397.19 
B) $249,408.08 
C) $249,511.11 
D) $249,670.22 
E) $249,717.08 
A) $249,397.19 
B) $249,408.08 
C) $249,511.11 
D) $249,670.22 
E) $249,717.08

Question 16

Which one of the following is defined as the relationship between the interest rate on default-free, pure discount bonds and the time to maturity?

Accepted Answer

A) discount rate curve 
B) Treasury yield curve 
C) risk premium structure 
D) term structure of interest rates 
E) market interest rate curve 
A) discount rate curve 
B) Treasury yield curve 
C) risk premium structure 
D) term structure of interest rates 
E) market interest rate curve

Question 17

What is the one-year interest rate one year from now if the current one-year interest rate is 2.75% and the two-year interest rate is 3.21%? Assume the rates are effective annual rates.

Accepted Answer

A) 3.62% 
B) 3.67% 
C) 3.71% 
D) 3.75% 
E) 3.88% 
A) 3.62% 
B) 3.67% 
C) 3.71% 
D) 3.75% 
E) 3.88%

Question 18

Which one of the following terms applies to a rate that serves as an indicator of future trends?

Accepted Answer

A) bellwether 
B) prime 
C) call 
D) discount 
E) nominal 
A) bellwether 
B) prime 
C) call 
D) discount 
E) nominal

Question 19

A $20,000 face value bond matures in 90 days and has a bank discount yield of 4.28%. What is the current value of the bond?

Accepted Answer

A) $19,392.19 
B) $19,473.14 
C) $19,486.47 
D) $19,571.11 
E) $19,786.00 
A) $19,392.19 
B) $19,473.14 
C) $19,486.47 
D) $19,571.11 
E) $19,786.00

Question 20

A $25,000 face value STRIPS is currently quoted at 27.25 and has 10 years to maturity. What is the yield-to-maturity?

Accepted Answer

A) 6.26% 
B) 6.72% 
C) 12.25% 
D) 13.43% 
E) 13.88% 
A) 6.26% 
B) 6.72% 
C) 12.25% 
D) 13.43% 
E) 13.88%

A $7,500 face value STRIPS matures in 8 years and is currently quoted at a price of 65.24. What is the yield-to-maturity?

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

How much should you be willing to pay today if you would like to earn an annual nominal rate of 4.23% on an investment that will pay you $20,000 seven years from today?

A 90-day Treasury bill has a bank discount yield of 4.2%. What is the effective annual rate?

Which one of the following statements is correct concerning large-denomination certificates of deposit?

A Treasury bill has a face value of $75,000, an asked yield of 3.05%, and matures in 90 days. What is the price of this bill?

Which one of the following statements is correct?

Which one of the following statements is correct concerning U.S. Treasury bill rates for the period 1800-2010?

A bond has a face value of $30,000 and matures in 62 days. What is the bank discount yield if the bond is currently selling for $29,750?

A Treasury bill has 21 days to maturity and a bank discount yield of 1.89%. What is the bond equivalent yield?

Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?

Which one of the following describes the term LIBOR?

The one-year interest rate is 4.80% and the two-year interest rate is 5.13%. What is the one-year interest rate one year from now? Assume the rates are effective annual rates.

A Treasury bill has a face value of $250,000, a bank discount yield of 2.02 percent, and matures in 32 days. What is the price of this bill?

Which one of the following is defined as the relationship between the interest rate on default-free, pure discount bonds and the time to maturity?

What is the one-year interest rate one year from now if the current one-year interest rate is 2.75% and the two-year interest rate is 3.21%? Assume the rates are effective annual rates.

Which one of the following terms applies to a rate that serves as an indicator of future trends?

A $20,000 face value bond matures in 90 days and has a bank discount yield of 4.28%. What is the current value of the bond?

A $25,000 face value STRIPS is currently quoted at 27.25 and has 10 years to maturity. What is the yield-to-maturity?

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

Exam 9: Interest Rates

A $7,500 face value STRIPS matures in 8 years and is currently quoted at a price of 65.24. What is the yield-to-maturity?

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

How much should you be willing to pay today if you would like to earn an annual nominal rate of 4.23% on an investment that will pay you $20,000 seven years from today?

A 90-day Treasury bill has a bank discount yield of 4.2%. What is the effective annual rate?

Which one of the following statements is correct concerning large-denomination certificates of deposit?

A Treasury bill has a face value of $75,000, an asked yield of 3.05%, and matures in 90 days. What is the price of this bill?

Which one of the following statements is correct?

Which one of the following statements is correct concerning U.S. Treasury bill rates for the period 1800-2010?

A bond has a face value of $30,000 and matures in 62 days. What is the bank discount yield if the bond is currently selling for $29,750?

A Treasury bill has 21 days to maturity and a bank discount yield of 1.89%. What is the bond equivalent yield?

Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?

Which one of the following describes the term LIBOR?

The one-year interest rate is 4.80% and the two-year interest rate is 5.13%. What is the one-year interest rate one year from now? Assume the rates are effective annual rates.

A Treasury bill has a face value of $250,000, a bank discount yield of 2.02 percent, and matures in 32 days. What is the price of this bill?

Which one of the following is defined as the relationship between the interest rate on default-free, pure discount bonds and the time to maturity?

What is the one-year interest rate one year from now if the current one-year interest rate is 2.75% and the two-year interest rate is 3.21%? Assume the rates are effective annual rates.

Which one of the following terms applies to a rate that serves as an indicator of future trends?

A $20,000 face value bond matures in 90 days and has a bank discount yield of 4.28%. What is the current value of the bond?

A $25,000 face value STRIPS is currently quoted at 27.25 and has 10 years to maturity. What is the yield-to-maturity?

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