Question 1

A 10-year Treasury note as a face value of $1,000, price of $1,200, and a 7.5% coupon rate.Based on this information, we know the:

Accepted Answer

A) present value is greater than its price. 
B) current yield is equal to 8.33%. 
C) coupon payment on this bond is equal to $75. 
D) coupon payment on this bond is equal to $90. 
A) present value is greater than its price. 
B) current yield is equal to 8.33%. 
C) coupon payment on this bond is equal to $75. 
D) coupon payment on this bond is equal to $90.

Question 2

If the annual interest rate is 5%(.05), the price of a six-month Treasury bill would be:

Accepted Answer

A) $97.50 
B) $97.59 
C) $95.25 
D) $95.00 
A) $97.50 
B) $97.59 
C) $95.25 
D) $95.00

Question 3

Consider a $1,000.00 face value bond with a $55 annual coupon and 10 years until maturity.Calculate the current yield; the coupon rate and the yield to maturity under each of the following:
a) The bond is purchased for $940.00
b) The bond is purchased for $1,130.00
c) The bond is purchased for $1,000.00

Accepted Answer

We can use a financial calculator to sol

Question 4

Which of the following is true of interest-rate risk?

Accepted Answer

A) It is the risk that the coupon rate for a bond will change, affecting current bondholders' coupon payments. 
B) It refers to the probability that a borrower will default on debt obligations. 
C) It is the risk that the face value of a bond will change before maturity. 
D) Individuals owning long-term bonds are exposed to greater interest-rate risk. 
A) It is the risk that the coupon rate for a bond will change, affecting current bondholders' coupon payments. 
B) It refers to the probability that a borrower will default on debt obligations. 
C) It is the risk that the face value of a bond will change before maturity. 
D) Individuals owning long-term bonds are exposed to greater interest-rate risk.

Question 5

The most common form of zero-coupon bonds found in the United States is:

Accepted Answer

A) AAA rated corporate bonds. 
B) U.S.Treasury bills. 
C) 30-year U.S.Treasury bonds. 
D) municipal bonds. 
A) AAA rated corporate bonds. 
B) U.S.Treasury bills. 
C) 30-year U.S.Treasury bonds. 
D) municipal bonds.

Question 6

Suppose that general business conditions improve, and at the same time, wealth increases.Based on this information, we know that:

Accepted Answer

A) bond prices increase. 
B) yield to maturity decreases. 
C) the real interest rate increases. 
D) the quantity of bonds increases. 
A) bond prices increase. 
B) yield to maturity decreases. 
C) the real interest rate increases. 
D) the quantity of bonds increases.

Question 7

The bond supply curve slopes upward because:

Accepted Answer

A) as bond prices rise people holding bonds are more tempted to hold them. 
B) as bond prices rise yields increase. 
C) for companies seeking financing, the higher the price of bonds the more attractive it is to sell bonds. 
D) as bond prices rise yields decrease. 
A) as bond prices rise people holding bonds are more tempted to hold them. 
B) as bond prices rise yields increase. 
C) for companies seeking financing, the higher the price of bonds the more attractive it is to sell bonds. 
D) as bond prices rise yields decrease.

Question 8

In reading bond quotes:

Accepted Answer

A) the bid price is usually above the asked price. 
B) the asked price is fixed over the life of the bond. 
C) the asked price is usually above the bid price. 
D) bid and asked prices must be equal as set forth by SEC regulations. 
A) the bid price is usually above the asked price. 
B) the asked price is fixed over the life of the bond. 
C) the asked price is usually above the bid price. 
D) bid and asked prices must be equal as set forth by SEC regulations.

Question 9

When the price of a bond is below the face value, the yield to maturity:

Accepted Answer

A) is below the coupon rate. 
B) will be above the coupon rate. 
C) will equal the current yield. 
D) will equal the coupon rate. 
A) is below the coupon rate. 
B) will be above the coupon rate. 
C) will equal the current yield. 
D) will equal the coupon rate.

Question 10

If the annual interest rate is 5%(.05), the price of a one-year Treasury bill per $100 of face value would be:

Accepted Answer

A) $95.00 
B) $97.50 
C) $95.24 
D) $96.10 
A) $95.00 
B) $97.50 
C) $95.24 
D) $96.10

Question 11

The market for bonds is initially described by the supply of bonds - S0, and the demand for bonds - D0, with the equilibrium price and quantity being P0 and Q0.If the federal government were to offer larger tax breaks on the purchase of new equipment for businesses, all other factors constant, we would expect to see:

Accepted Answer

A) Bond supply curve to shift to S1 
B) Bond demand curve to shift to D1 
C) Bond supply curve to shift to S2 
D) Bond demand curve to shift to D2 
A) Bond supply curve to shift to S1 
B) Bond demand curve to shift to D1 
C) Bond supply curve to shift to S2 
D) Bond demand curve to shift to D2

Question 12

An increase in the nation's wealth, all other factors constant, would cause:

Accepted Answer

A) bond prices to fall and yields to increase. 
B) bond prices and yields to increase. 
C) bond prices to rise and yields to decrease. 
D) the bond supply curve to shift right. 
A) bond prices to fall and yields to increase. 
B) bond prices and yields to increase. 
C) bond prices to rise and yields to decrease. 
D) the bond supply curve to shift right.

Question 13

A consol is:

Accepted Answer

A) another name for a zero-coupon bond. 
B) a bond with a maturity date exceeding 10 years. 
C) a bond that makes periodic interest payments forever. 
D) a form of a bond that is issued quite often by the U.S.Treasury. 
A) another name for a zero-coupon bond. 
B) a bond with a maturity date exceeding 10 years. 
C) a bond that makes periodic interest payments forever. 
D) a form of a bond that is issued quite often by the U.S.Treasury.

Question 14

If the risk on foreign government bonds increases relative to U.S.government bonds, the price of U.S.government bonds should:

Accepted Answer

A) not change since U.S.government bonds are free of default risk. 
B) decrease since people will bail out of all government bonds. 
C) increase as the demand for these bonds increases. 
D) not be affected because the two types of bonds are traded in different markets. 
A) not change since U.S.government bonds are free of default risk. 
B) decrease since people will bail out of all government bonds. 
C) increase as the demand for these bonds increases. 
D) not be affected because the two types of bonds are traded in different markets.

Question 15

A $1,000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has a:

Accepted Answer

A) current yield equal to 6.22%. 
B) current yield equal to 6.00%. 
C) coupon rate equal to 6.22%. 
D) yield to maturity and current yield equal to 6.00%. 
A) current yield equal to 6.22%. 
B) current yield equal to 6.00%. 
C) coupon rate equal to 6.22%. 
D) yield to maturity and current yield equal to 6.00%.

Question 16

Default risk is the risk associated with:

Accepted Answer

A) the bond issuer not being able to make the promised payments. 
B) the illiquidity associated with small issues. 
C) the effect on bond prices caused by changes in market rates of interest. 
D) changes in the expected inflation rate. 
A) the bond issuer not being able to make the promised payments. 
B) the illiquidity associated with small issues. 
C) the effect on bond prices caused by changes in market rates of interest. 
D) changes in the expected inflation rate.

Question 17

At the time the government of Bulgrovia issued new bonds, they issued them at a price that reflected the risk-free rate because investors had no concerns regarding default risk, so did not require a risk premium.That risk-free rate was 4%.These bonds currently have one year to maturity and you notice the yield is 20%.Can you calculate the probability that the Bulgrovian government will default?

Accepted Answer

The simple answer is no.A risk-premium i

Question 18

The demand for U.S.government bonds is high relative to other bond issues because:

Accepted Answer

A) liquidity of other bond issues is high relative to U.S.government bonds. 
B) U.S.bond market has low transaction spreads due to high illiquidity. 
C) market for U.S.government bonds is more liquid than most if not all other bond markets. 
D) U.S.government bonds have higher default. 
A) liquidity of other bond issues is high relative to U.S.government bonds. 
B) U.S.bond market has low transaction spreads due to high illiquidity. 
C) market for U.S.government bonds is more liquid than most if not all other bond markets. 
D) U.S.government bonds have higher default.

Question 19

Consider a zero-coupon bond with a $1,100 payment in one year.Suppose the interest rate decreases from 10% to 8%.The price of this bond:

Accepted Answer

A) increases from $1,000 to $1,018. 
B) increases from $1,000 to $1,375. 
C) decreases from $110 to $88. 
D) decreases from $1,210 to $1,188. 
A) increases from $1,000 to $1,018. 
B) increases from $1,000 to $1,375. 
C) decreases from $110 to $88. 
D) decreases from $1,210 to $1,188.

Question 20

Interest-rate risk results from:

Accepted Answer

A) bond prices being fixed over the life of the bond. 
B) a mismatch between an individual's investment horizon and a bond's maturity. 
C) the fact that most people hold bonds until they mature. 
D) inflation being uncertain. 
A) bond prices being fixed over the life of the bond. 
B) a mismatch between an individual's investment horizon and a bond's maturity. 
C) the fact that most people hold bonds until they mature. 
D) inflation being uncertain.

A 10-year Treasury note as a face value of $1,000, price of $1,200, and a 7.5% coupon rate.Based on this information, we know the:

If the annual interest rate is 5%(.05), the price of a six-month Treasury bill would be:

Which of the following is true of interest-rate risk?

The most common form of zero-coupon bonds found in the United States is:

Suppose that general business conditions improve, and at the same time, wealth increases.Based on this information, we know that:

The bond supply curve slopes upward because:

In reading bond quotes:

When the price of a bond is below the face value, the yield to maturity:

If the annual interest rate is 5%(.05), the price of a one-year Treasury bill per $100 of face value would be:

An increase in the nation's wealth, all other factors constant, would cause:

A consol is:

If the risk on foreign government bonds increases relative to U.S.government bonds, the price of U.S.government bonds should:

A $1,000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has a:

Default risk is the risk associated with:

The demand for U.S.government bonds is high relative to other bond issues because:

Consider a zero-coupon bond with a $1,100 payment in one year.Suppose the interest rate decreases from 10% to 8%.The price of this bond:

Interest-rate risk results from:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

A 10-year Treasury note as a face value of $1,000, price of $1,200, and a 7.5% coupon rate.Based on this information, we know the:

If the annual interest rate is 5%(.05), the price of a six-month Treasury bill would be:

Which of the following is true of interest-rate risk?

The most common form of zero-coupon bonds found in the United States is:

Suppose that general business conditions improve, and at the same time, wealth increases.Based on this information, we know that:

The bond supply curve slopes upward because:

In reading bond quotes:

When the price of a bond is below the face value, the yield to maturity:

If the annual interest rate is 5%(.05), the price of a one-year Treasury bill per $100 of face value would be:

An increase in the nation's wealth, all other factors constant, would cause:

A consol is:

If the risk on foreign government bonds increases relative to U.S.government bonds, the price of U.S.government bonds should:

A $1,000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has a:

Default risk is the risk associated with:

The demand for U.S.government bonds is high relative to other bond issues because:

Consider a zero-coupon bond with a $1,100 payment in one year.Suppose the interest rate decreases from 10% to 8%.The price of this bond:

Interest-rate risk results from:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters