Question 1

At an interest rate of 3%,what is the present value of $1,000 to be received five years from now?

Accepted Answer

A)  $850 
B)  $863 
C)  $1,159 
D)  $1,667 
A)  $850 
B)  $863 
C)  $1,159 
D)  $1,667

Question 2

What is the rate of return on a bond with a coupon of $55 that was purchased for $900 and sold one year later for $950?

Accepted Answer

A)  5.56% 
B)  6.11% 
C)  11.67% 
D)  12.43% 
A)  5.56% 
B)  6.11% 
C)  11.67% 
D)  12.43%

Question 3

The expected real interest rate approximately equals

Accepted Answer

A)  the nominal interest rate minus the tax rate. 
B)  the nominal interest rate minus the expected rate of inflation. 
C)  the nominal interest rate plus the expected rate of inflation. 
D)  the yield to maturity on a coupon bond held to maturity. 
A)  the nominal interest rate minus the tax rate. 
B)  the nominal interest rate minus the expected rate of inflation. 
C)  the nominal interest rate plus the expected rate of inflation. 
D)  the yield to maturity on a coupon bond held to maturity.

Question 4

If i is the yield to maturity of a fixed-payment loan

Accepted Answer

A)  the value of the loan today equals i times the sum of the values of all the loan payments. 
B)  i equals the present value of the loan payments. 
C)  the value of the loan today equals the sum of the values of the loan payments. 
D)  the value of the loan today equals the present value of the loan payments discounted at rate i. 
A)  the value of the loan today equals i times the sum of the values of all the loan payments. 
B)  i equals the present value of the loan payments. 
C)  the value of the loan today equals the sum of the values of the loan payments. 
D)  the value of the loan today equals the present value of the loan payments discounted at rate i.

Question 5

Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in that

Accepted Answer

A)  interest on simple loans and discount bonds is taxable, while interest on coupon bonds and fixed-payment loans is not. 
B)  interest on coupon bonds and fixed-payment loans is taxable, while interest on simple loans and discount bonds is not. 
C)  interest rates on simple loans and discount bonds are generally higher than interest rates on comparable coupon bonds and fixed-payment loans. 
D)  interest on simple loans and discount bonds is paid in a single payment, while issuers of coupon bonds and fixed-payment loans make multiple payments of interest and principal. 
A)  interest on simple loans and discount bonds is taxable, while interest on coupon bonds and fixed-payment loans is not. 
B)  interest on coupon bonds and fixed-payment loans is taxable, while interest on simple loans and discount bonds is not. 
C)  interest rates on simple loans and discount bonds are generally higher than interest rates on comparable coupon bonds and fixed-payment loans. 
D)  interest on simple loans and discount bonds is paid in a single payment, while issuers of coupon bonds and fixed-payment loans make multiple payments of interest and principal.

Question 6

What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44?

Accepted Answer

A)  5.56% 
B)  8.50% 
C)  9.00% 
D)  Not enough information has been provided to determine the answer. 
A)  5.56% 
B)  8.50% 
C)  9.00% 
D)  Not enough information has been provided to determine the answer.

Question 7

How do payments on a fixed-payment loan differ from a coupon bond?

Accepted Answer

Borrowers that use a coupon bond make in

Question 8

What is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931?

Accepted Answer

A)  2% 
B)  4% 
C)  6% 
D)  19% 
A)  2% 
B)  4% 
C)  6% 
D)  19%

Question 9

Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and the expected annual inflation rate over the life of the mortgage is 2%.What is the expected real interest rate?

Accepted Answer

A)  3% 
B)  4% 
C)  8% 
D)  12% 
A)  3% 
B)  4% 
C)  8% 
D)  12%

Question 10

A sustained decrease in the price level is known as

Accepted Answer

A)  inflation. 
B)  disinflation. 
C)  reflation. 
D)  deflation. 
A)  inflation. 
B)  disinflation. 
C)  reflation. 
D)  deflation.

Question 11

A bond's price and its yield to maturity are inversely related because

Accepted Answer

A)  discounting future payments at a higher rate reduces the present value of the payments. 
B)  discounting future payments at a higher rate increases the present value of the payments. 
C)  an increase in the yield to maturity will lower a bond's coupon rate and hence its price. 
D)  a fall in a bond's price will lower its par value and hence its yield to maturity. 
A)  discounting future payments at a higher rate reduces the present value of the payments. 
B)  discounting future payments at a higher rate increases the present value of the payments. 
C)  an increase in the yield to maturity will lower a bond's coupon rate and hence its price. 
D)  a fall in a bond's price will lower its par value and hence its yield to maturity.

Question 12

Why may investors buy a Treasury bill with a negative real interest rate?

Accepted Answer

A)  fear of rising inflation 
B)  concern about high yields on other bonds 
C)  fear of default by the U.S. government 
D)  concern about the high default risk of alternative investments 
A)  fear of rising inflation 
B)  concern about high yields on other bonds 
C)  fear of default by the U.S. government 
D)  concern about the high default risk of alternative investments

Question 13

Debt instruments are also called

Accepted Answer

A)  equities. 
B)  credit market instruments. 
C)  prospectuses. 
D)  units of account. 
A)  equities. 
B)  credit market instruments. 
C)  prospectuses. 
D)  units of account.

Question 14

How can a bond have a negative rate of return?

Accepted Answer

A)  if the current yield is greater than the coupon rate 
B)  if the current yield is less than the coupon rate 
C)  if the rate of capital loss exceeds the current yield 
D)  if the rate of capital gains is less than the current yield 
A)  if the current yield is greater than the coupon rate 
B)  if the current yield is less than the coupon rate 
C)  if the rate of capital loss exceeds the current yield 
D)  if the rate of capital gains is less than the current yield

Question 15

If the real interest rate is -1.4% and the nominal interest rate is 0.6%,expected inflation equals

Accepted Answer

A)  -2%. 
B)  -0.8%. 
C)  0.8%. 
D)  2%. 
A)  -2%. 
B)  -0.8%. 
C)  0.8%. 
D)  2%.

Question 16

An speculator who buys a fifty-year corporate bond

Accepted Answer

A)  must be expecting to still be alive in fifty years. 
B)  is subject to substantial reinvestment risk. 
C)  is probably expecting market interest rates to increase in the future. 
D)  is probably expecting market interest rates to decrease in the future. 
A)  must be expecting to still be alive in fifty years. 
B)  is subject to substantial reinvestment risk. 
C)  is probably expecting market interest rates to increase in the future. 
D)  is probably expecting market interest rates to decrease in the future.

Question 17

The price of a financial asset equals the

Accepted Answer

A)  future value of all payments. 
B)  sum of all payments. 
C)  present value of all future payments. 
D)  difference between the future value and present value of all payments. 
A)  future value of all payments. 
B)  sum of all payments. 
C)  present value of all future payments. 
D)  difference between the future value and present value of all payments.

Question 18

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 19

Which of the following will lead to a higher interest rate on a loan?

Accepted Answer

A)  lower inflation 
B)  lower opportunity cost 
C)  increased perceived risk of default 
D)  reduced likelihood of borrower not paying the loan 
A)  lower inflation 
B)  lower opportunity cost 
C)  increased perceived risk of default 
D)  reduced likelihood of borrower not paying the loan

Question 20

The rate of return is equal to the

Accepted Answer

A)  sum of the coupon rate and the current yield. 
B)  yield to maturity. 
C)  sum of the current yield and the actual rate of capital gain or loss. 
D)  sum of the current yield and the expected rate of capital gain. 
A)  sum of the coupon rate and the current yield. 
B)  yield to maturity. 
C)  sum of the current yield and the actual rate of capital gain or loss. 
D)  sum of the current yield and the expected rate of capital gain.

At an interest rate of 3%,what is the present value of $1,000 to be received five years from now?

What is the rate of return on a bond with a coupon of $55 that was purchased for $900 and sold one year later for $950?

The expected real interest rate approximately equals

If i is the yield to maturity of a fixed-payment loan

Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in that

What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44?

How do payments on a fixed-payment loan differ from a coupon bond?

What is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931?

Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and the expected annual inflation rate over the life of the mortgage is 2%.What is the expected real interest rate?

A sustained decrease in the price level is known as

A bond's price and its yield to maturity are inversely related because

Why may investors buy a Treasury bill with a negative real interest rate?

Debt instruments are also called

How can a bond have a negative rate of return?

If the real interest rate is -1.4% and the nominal interest rate is 0.6%,expected inflation equals

An speculator who buys a fifty-year corporate bond

The price of a financial asset equals the

U.S.Treasury bonds

Which of the following will lead to a higher interest rate on a loan?

The rate of return is equal to the

Introducing Money and the Financial System

Money and the Payments System

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 3: Interest Rates and Rates of Return

At an interest rate of 3%,what is the present value of $1,000 to be received five years from now?

What is the rate of return on a bond with a coupon of $55 that was purchased for $900 and sold one year later for $950?

The expected real interest rate approximately equals

If i is the yield to maturity of a fixed-payment loan

Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in that

What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44?

How do payments on a fixed-payment loan differ from a coupon bond?

What is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931?

Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and the expected annual inflation rate over the life of the mortgage is 2%.What is the expected real interest rate?

A sustained decrease in the price level is known as

A bond's price and its yield to maturity are inversely related because

Why may investors buy a Treasury bill with a negative real interest rate?

Debt instruments are also called

How can a bond have a negative rate of return?

If the real interest rate is -1.4% and the nominal interest rate is 0.6%,expected inflation equals

An speculator who buys a fifty-year corporate bond

The price of a financial asset equals the

U.S.Treasury bonds

Which of the following will lead to a higher interest rate on a loan?

The rate of return is equal to the

Introducing Money and the Financial System

Money and the Payments System

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters