Question 1

Which of the following is the correct expression for the approximate expected real interest rate?

Accepted Answer

A) r = i +   
B) r = i -   
C) r = i/   
D) r = i   
A) r = i +   
B) r = i -   
C) r = i/   
D) r = i

Question 2

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

Accepted Answer

Borrowers that use a coupon bond make in

Question 3

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 4

Which of the following is NOT a fixed payment loan?

Accepted Answer

A) a home mortgage 
B) a car loan 
C) a U.S. Treasury note 
D) a student loan 
A) a home mortgage 
B) a car loan 
C) a U.S. Treasury note 
D) a student loan

Question 5

A simple loan involves

Accepted Answer

A) interest payments from the borrower to the lender periodically during the life of the loan. 
B) no payment of interest by the borrower to the lender. 
C) payment of interest by the borrower to the lender only at the time the loan matures. 
D) payment only of principal. by the borrower to the lender at maturity. 
A) interest payments from the borrower to the lender periodically during the life of the loan. 
B) no payment of interest by the borrower to the lender. 
C) payment of interest by the borrower to the lender only at the time the loan matures. 
D) payment only of principal. by the borrower to the lender at maturity.

Question 6

A one-year discount bond has a face value of $1000 and a price of $925. What is the yield to maturity on the bond? Report using percentages with two decimal places.

Accepted Answer

The yield to maturit

Question 7

A discount bond involves

Accepted Answer

A) interest payments from the borrower to the lender periodically during the life of the loan. 
B) payment by the borrower to the lender of the face value of the loan at maturity. 
C) no payment of principal by the borrower to the lender. 
D) payment of interest by the borrower to the lender every six months during the life of the loan. 
A) interest payments from the borrower to the lender periodically during the life of the loan. 
B) payment by the borrower to the lender of the face value of the loan at maturity. 
C) no payment of principal by the borrower to the lender. 
D) payment of interest by the borrower to the lender every six months during the life of the loan.

Question 8

A one-year discount bond has a face value of $1000 and price of $880. What is the yield to maturity on the bond? Report using percentages with two decimal places.

Accepted Answer

The yield to maturit

Question 9

Which of the following is fixed on a coupon bond?

Accepted Answer

A) coupon rate 
B) current yield 
C) market price 
D) yield to maturity 
A) coupon rate 
B) current yield 
C) market price 
D) yield to maturity

Question 10

Which of the following is NOT a fixed-payment loan?

Accepted Answer

A) mortgage 
B) car loan 
C) student loan 
D) corporate bond 
A) mortgage 
B) car loan 
C) student loan 
D) corporate bond

Question 11

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 12

A debt instrument represents

Accepted Answer

A) an ownership claim by the purchaser on the issuer. 
B) a promise by a borrower to repay principal plus interest to a lender. 
C) an attempt by a borrower in default to restore his or her credit. 
D) a nontaxable asset, owned primarily by large corporations. 
A) an ownership claim by the purchaser on the issuer. 
B) a promise by a borrower to repay principal plus interest to a lender. 
C) an attempt by a borrower in default to restore his or her credit. 
D) a nontaxable asset, owned primarily by large corporations.

Question 13

For simple loans, the yield to maturity

Accepted Answer

A) is always less than the specified simple interest rate. 
B) is always greater than the specified simple interest rate. 
C) is always equal to the specified simple interest rate. 
D) may be less than, greater than, or equal to the specified simple interest rate, depending on the maturity of the loan. 
A) is always less than the specified simple interest rate. 
B) is always greater than the specified simple interest rate. 
C) is always equal to the specified simple interest rate. 
D) may be less than, greater than, or equal to the specified simple interest rate, depending on the maturity of the loan.

Question 14

If an investor is certain that market interest rates will decline in the future, which of the following will she be most likely to purchase?

Accepted Answer

A) a six-month government bill 
B) a two-year government note 
C) a ten-year government bond 
D) a fifty-year government bond 
A) a six-month government bill 
B) a two-year government note 
C) a ten-year government bond 
D) a fifty-year government bond

Question 15

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 16

The amount of funds the borrower receives from the lender with a simple loan is called the

Accepted Answer

A) principal. 
B) equity. 
C) claim. 
D) collateral. 
A) principal. 
B) equity. 
C) claim. 
D) collateral.

Question 17

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 18

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1400 which has payments of $500 per year?

Accepted Answer

A) $1400 = $500/(1+i)+ $500/(1+i)2 + $500/(1+i)3 
B) $1400 = $500/(1+i)3 
C) i = (1400-500)/1400 
D) $1400 = $500/(1+i)+ $500/(1+i)2 + $500(1+i)3 + 1400/(1+i)3 
A) $1400 = $500/(1+i)+ $500/(1+i)2 + $500/(1+i)3 
B) $1400 = $500/(1+i)3 
C) i = (1400-500)/1400 
D) $1400 = $500/(1+i)+ $500/(1+i)2 + $500(1+i)3 + 1400/(1+i)3

Question 19

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

Accepted Answer

A) Treasury bond 
B) TIPS 
C) corporate bond 
D) municipal bond 
A) Treasury bond 
B) TIPS 
C) corporate bond 
D) municipal bond

Question 20

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.

Which of the following is the correct expression for the approximate expected real interest rate?

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

U.S. Treasury bonds

Which of the following is NOT a fixed payment loan?

A simple loan involves

A one-year discount bond has a face value of $1000 and a price of $925. What is the yield to maturity on the bond? Report using percentages with two decimal places.

A discount bond involves

A one-year discount bond has a face value of $1000 and price of $880. What is the yield to maturity on the bond? Report using percentages with two decimal places.

Which of the following is fixed on a coupon bond?

Which of the following is NOT a fixed-payment loan?

A sustained decrease in the price level is known as

A debt instrument represents

For simple loans, the yield to maturity

If an investor is certain that market interest rates will decline in the future, which of the following will she be most likely to purchase?

The price of a financial asset equals the

The amount of funds the borrower receives from the lender with a simple loan is called the

Debt instruments are also called

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1400 which has payments of $500 per year?

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

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

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 is the correct expression for the approximate expected real interest rate?

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

U.S. Treasury bonds

Which of the following is NOT a fixed payment loan?

A simple loan involves

A one-year discount bond has a face value of $1000 and a price of $925. What is the yield to maturity on the bond? Report using percentages with two decimal places.

A discount bond involves

A one-year discount bond has a face value of $1000 and price of $880. What is the yield to maturity on the bond? Report using percentages with two decimal places.

Which of the following is fixed on a coupon bond?

Which of the following is NOT a fixed-payment loan?

A sustained decrease in the price level is known as

A debt instrument represents

For simple loans, the yield to maturity

If an investor is certain that market interest rates will decline in the future, which of the following will she be most likely to purchase?

The price of a financial asset equals the

The amount of funds the borrower receives from the lender with a simple loan is called the

Debt instruments are also called

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1400 which has payments of $500 per year?

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

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

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