Question 1

Which of the following statements about the rate of return is NOT correct?

Accepted Answer

A) The total rate of return may be greater or less than the current yield. 
B) The total rate of return may be greater or less than the rate of capital gain. 
C) The total rate of return may never be negative. 
D) The total rate of return is greater than the coupon, holding everything else constant. 
A) The total rate of return may be greater or less than the current yield. 
B) The total rate of return may be greater or less than the rate of capital gain. 
C) The total rate of return may never be negative. 
D) The total rate of return is greater than the coupon, holding everything else constant.

Question 2

What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?

Accepted Answer

The yield

Question 3

If the annual interest rate is 9%, what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

Accepted Answer

A) $8,417 
B) $8,200 
C) $10,000 
D) $11,881 
A) $8,417 
B) $8,200 
C) $10,000 
D) $11,881

Question 4

The rate of return is equal to

Accepted Answer

A) the coupon rate plus the rate of capital gains. 
B) the coupon rate plus the current yield. 
C) the current yield plus the rate of capital gains. 
D) the coupon rate multiplied by the rate of capital gains. 
A) the coupon rate plus the rate of capital gains. 
B) the coupon rate plus the current yield. 
C) the current yield plus the rate of capital gains. 
D) the coupon rate multiplied by the rate of capital gains.

Question 5

What is the price of a coupon bond that has annual coupon payments of $85, a par value of $1000, a yield to maturity of 10%, and a maturity of three years?

Accepted Answer

A) $211.38 
B) $898.84 
C) $962.70 
D) $1255.0 
A) $211.38 
B) $898.84 
C) $962.70 
D) $1255.0

Question 6

Suppose a bond has a coupon of $40, face value of $1000, and current price of $950. What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Accepted Answer

The coupon rate is $

Question 7

The yield to maturity is equal to

Accepted Answer

A) the interest rate at which the present value of an asset's returns is equal to its price today. 
B) the face value or par value of a coupon bond. 
C) any payments received from an asset at the date the asset matures. 
D) interest rate on the asset minus any taxes owed on the interest received. 
A) the interest rate at which the present value of an asset's returns is equal to its price today. 
B) the face value or par value of a coupon bond. 
C) any payments received from an asset at the date the asset matures. 
D) interest rate on the asset minus any taxes owed on the interest received.

Question 8

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.

Question 9

Which of the following is a fixed payment loan?

Accepted Answer

A) a home mortgage 
B) a U.S. Treasury bill 
C) a U.S. Treasury note 
D) a zero-coupon bond 
A) a home mortgage 
B) a U.S. Treasury bill 
C) a U.S. Treasury note 
D) a zero-coupon bond

Question 10

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 11

For a specific change in the yield to maturity

Accepted Answer

A) the shorter the time until a bond matures, the greater will be the change in its price. 
B) the longer the time until a bond matures, the greater will be the change in its price. 
C) the longer the time until a bond matures, the greater will be the change in its par value. 
D) the shorter the time until a bond matures, the greater will be the change in its coupon rate. 
A) the shorter the time until a bond matures, the greater will be the change in its price. 
B) the longer the time until a bond matures, the greater will be the change in its price. 
C) the longer the time until a bond matures, the greater will be the change in its par value. 
D) the shorter the time until a bond matures, the greater will be the change in its coupon rate.

Question 12

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 13

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

Accepted Answer

A) higher monthly payments 
B) more interest paid over the life of the loan 
C) faster payoff of principal 
D) lower monthly payments initially, but higher monthly payments in the future 
A) higher monthly payments 
B) more interest paid over the life of the loan 
C) faster payoff of principal 
D) lower monthly payments initially, but higher monthly payments in the future

Question 14

Nominal interest rates are higher than real interest rates as long as

Accepted Answer

A) expected inflation is positive. 
B) the government taxes interest income. 
C) inflation is expected to decline in the future. 
D) long-term interest rates are higher than short-term interest rates. 
A) expected inflation is positive. 
B) the government taxes interest income. 
C) inflation is expected to decline in the future. 
D) long-term interest rates are higher than short-term interest rates.

Question 15

If the current price of a bond is equal to its face value,

Accepted Answer

A) there is no capital gain or loss from holding the bond until maturity. 
B) the yield to maturity must be greater than the current yield. 
C) the current yield must be greater than the coupon rate. 
D) the coupon rate must be greater than the yield to maturity. 
A) there is no capital gain or loss from holding the bond until maturity. 
B) the yield to maturity must be greater than the current yield. 
C) the current yield must be greater than the coupon rate. 
D) the coupon rate must be greater than the yield to maturity.

Question 16

If the current price of a bond is greater than its face value

Accepted Answer

A) an investor will receive a capital gain by holding the bond until maturity. 
B) the yield to maturity must be less than the coupon rate. 
C) the coupon rate must be less than the current yield. 
D) the coupon rate must be equal to the current yield. 
A) an investor will receive a capital gain by holding the bond until maturity. 
B) the yield to maturity must be less than the coupon rate. 
C) the coupon rate must be less than the current yield. 
D) the coupon rate must be equal to the current yield.

Question 17

$1 received n years from now has a value today of

Accepted Answer

A) ($1 + i)/i. 
B) $1/(1 + i). 
C) ($1 + i   /i. 
D) $1/(1 + i   . 
A) ($1 + i)/i. 
B) $1/(1 + i). 
C) ($1 + i   /i. 
D) $1/(1 + i   .

Question 18

Suppose Matt's New Cars issues a bond in which they'll need to pay $10,000 in one year, which includes 4% interest. How much will they receive for the bond?

Accepted Answer

A) $9,600 
B) $9,615 
C) $10,000 
D) $10,400 
A) $9,600 
B) $9,615 
C) $10,000 
D) $10,400

Question 19

Which group is hurt by inflation being less than expected?

Accepted Answer

A) holders of TIPS 
B) lenders of fixed-rate mortgages 
C) borrowers with fixed-rate mortgages 
D) all of the above 
A) holders of TIPS 
B) lenders of fixed-rate mortgages 
C) borrowers with fixed-rate mortgages 
D) all of the above

Question 20

Unless otherwise indicated, when economists or investors refer to the interest rate on a financial asset, they referring to the:

Accepted Answer

A) current yield 
B) coupon rate 
C) yield to maturity 
D) prime rate 
A) current yield 
B) coupon rate 
C) yield to maturity 
D) prime rate

Which of the following statements about the rate of return is NOT correct?

What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?

If the annual interest rate is 9%, what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

The rate of return is equal to

What is the price of a coupon bond that has annual coupon payments of $85, a par value of $1000, a yield to maturity of 10%, and a maturity of three years?

Suppose a bond has a coupon of $40, face value of $1000, and current price of $950. What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

The yield to maturity is equal to

The rate of return is equal to the

Which of the following is a fixed payment loan?

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

For a specific change in the yield to maturity

An speculator who buys a fifty-year corporate bond

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

Nominal interest rates are higher than real interest rates as long as

If the current price of a bond is equal to its face value,

If the current price of a bond is greater than its face value

$1 received n years from now has a value today of

Suppose Matt's New Cars issues a bond in which they'll need to pay $10,000 in one year, which includes 4% interest. How much will they receive for the bond?

Which group is hurt by inflation being less than expected?

Unless otherwise indicated, when economists or investors refer to the interest rate on a financial asset, they referring 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

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

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

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Exam 3: Interest Rates and Rates of Return

Which of the following statements about the rate of return is NOT correct?

What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?

If the annual interest rate is 9%, what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

The rate of return is equal to

What is the price of a coupon bond that has annual coupon payments of $85, a par value of $1000, a yield to maturity of 10%, and a maturity of three years?

Suppose a bond has a coupon of $40, face value of $1000, and current price of $950. What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

The yield to maturity is equal to

The rate of return is equal to the

Which of the following is a fixed payment loan?

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

For a specific change in the yield to maturity

An speculator who buys a fifty-year corporate bond

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

Nominal interest rates are higher than real interest rates as long as

If the current price of a bond is equal to its face value,

If the current price of a bond is greater than its face value

$1 received n years from now has a value today of

Suppose Matt's New Cars issues a bond in which they'll need to pay $10,000 in one year, which includes 4% interest. How much will they receive for the bond?

Which group is hurt by inflation being less than expected?

Unless otherwise indicated, when economists or investors refer to the interest rate on a financial asset, they referring 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

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

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