Question 1

Which of the following is a coupon bond?

Accepted Answer

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

Question 2

Why isn't the current yield a good indicator of holding a bond?

Accepted Answer

A) It doesn't account for the yield to maturity. 
B) It doesn't account for capital gains or losses. 
C) It doesn't account for the coupon. 
D) It assumes that the current price equals its par value. 
A) It doesn't account for the yield to maturity. 
B) It doesn't account for capital gains or losses. 
C) It doesn't account for the coupon. 
D) It assumes that the current price equals its par value.

Question 3

A corporation issues a three-year bond with a coupon of $50 and a face value of $1000. A year later, market interest rates have declined to 4%. What is the price of the bond a year after it was issued? Report your answer to the nearest dollar.

Accepted Answer

Since the price of t

Question 4

Suppose you have two clients who need your services for two years. One agreed to pay you $50,000 one year from now and another $50,000 in two years while the other paid $35,000 after one year, but $65,000 after two years. Assuming an interest rate of 10%, which one has a higher present value? Round off to the nearest dollar.

Accepted Answer

The present value of

Question 5

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 6

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 7

How long does it take prices of securities to adjust so as to eliminate arbitrage profits?

Accepted Answer

A) seconds 
B) hours 
C) days 
D) months 
A) seconds 
B) hours 
C) days 
D) months

Question 8

Which of the following types of mortgage loans became more common during the housing boom of the early-to-mid 2000s?

Accepted Answer

A) those with flawed credit histories 
B) thirty-year, fixed-rate mortgages 
C) prime Mortgages 
D) those with down payments of at least 20% 
A) those with flawed credit histories 
B) thirty-year, fixed-rate mortgages 
C) prime Mortgages 
D) those with down payments of at least 20%

Question 9

How are TIPS adjusted for inflation?

Accepted Answer

A) The interest rate is adjusted for inflation during each period. 
B) The principal is adjusted once the bond reaches maturity. 
C) The principal is adjusted for inflation each period. 
D) The interest rate is adjusted once the bond reaches maturity. 
A) The interest rate is adjusted for inflation during each period. 
B) The principal is adjusted once the bond reaches maturity. 
C) The principal is adjusted for inflation each period. 
D) The interest rate is adjusted once the bond reaches maturity.

Question 10

Suppose Matt's New Cars issues and sells a one-year discount bond for $9,259 and repays $10,000 at maturity. The interest rate on this bond would be

Accepted Answer

A) 2)6%. 
B) 7)41%. 
C) 8%. 
D) 10%. 
A) 2)6%. 
B) 7)41%. 
C) 8%. 
D) 10%.

Question 11

Suppose a coupon bond with a par value of $1000 is currently priced at $950 and has a coupon of $40. Which of the following is true?

Accepted Answer

A) current yield > coupon rate B) current yield < coupon rate C) coupon rate has risen D) coupon rate has declined A) current yield > coupon rate B) current yield < coupon rate C) coupon rate has risen D) coupon rate has declined

Question 12

Suppose you purchase a bond with a coupon of $30 for $1025. You sell it one year later for $1050. What rate of return did you earn? Report a percentage with two decimal places.

Accepted Answer

The rate of return i

Question 13

Issuers of coupon bonds

Accepted Answer

A) make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond. 
B) make a single payment of interest and principal. 
C) make multiple payments of principal, but a single payment of interest. 
D) make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond. 
A) make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond. 
B) make a single payment of interest and principal. 
C) make multiple payments of principal, but a single payment of interest. 
D) make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond.

Question 14

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Accepted Answer

A) 6% 
B) 6)38% 
C) 5)3% 
D) Not enough information has been provided to determine the answer. 
A) 6% 
B) 6)38% 
C) 5)3% 
D) Not enough information has been provided to determine the answer.

Question 15

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to:

Accepted Answer

A) rising yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
B) falling yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
C) their inability to issue new mortgages. 
D) more rapid pre-payment of mortgages. 
A) rising yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
B) falling yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
C) their inability to issue new mortgages. 
D) more rapid pre-payment of mortgages.

Question 16

If, while you are holding a coupon bond, the interest rates on other similar bonds fall, you can be sure that

Accepted Answer

A) the coupon payments on your bond will fall. 
B) the market price of your bond will rise. 
C) the market price of your bond will fall. 
D) the par value of your bond will rise. 
A) the coupon payments on your bond will fall. 
B) the market price of your bond will rise. 
C) the market price of your bond will fall. 
D) the par value of your bond will rise.

Question 17

On a coupon bond, the yield to maturity

Accepted Answer

A) always equals the coupon rate. 
B) equates the present value of all the bond's payments to its price today. 
C) increases when the market price of the bond increases. 
D) equals the coupon payment divided by the current price of the bond. 
A) always equals the coupon rate. 
B) equates the present value of all the bond's payments to its price today. 
C) increases when the market price of the bond increases. 
D) equals the coupon payment divided by the current price of the bond.

Question 18

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 19

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 20

A coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals

Accepted Answer

A) 7)50%. 
B) 8)33%. 
C) its yield to maturity. 
D) Not enough information has been provided to calculate the current yield for this bond. 
A) 7)50%. 
B) 8)33%. 
C) its yield to maturity. 
D) Not enough information has been provided to calculate the current yield for this bond.

Which of the following is a coupon bond?

Why isn't the current yield a good indicator of holding a bond?

A corporation issues a three-year bond with a coupon of $50 and a face value of $1000. A year later, market interest rates have declined to 4%. What is the price of the bond a year after it was issued? Report your answer to the nearest dollar.

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

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

How long does it take prices of securities to adjust so as to eliminate arbitrage profits?

Which of the following types of mortgage loans became more common during the housing boom of the early-to-mid 2000s?

How are TIPS adjusted for inflation?

Suppose Matt's New Cars issues and sells a one-year discount bond for $9,259 and repays $10,000 at maturity. The interest rate on this bond would be

Suppose a coupon bond with a par value of $1000 is currently priced at $950 and has a coupon of $40. Which of the following is true?

Suppose you purchase a bond with a coupon of $30 for $1025. You sell it one year later for $1050. What rate of return did you earn? Report a percentage with two decimal places.

Issuers of coupon bonds

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to:

If, while you are holding a coupon bond, the interest rates on other similar bonds fall, you can be sure that

On a coupon bond, the yield to maturity

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

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 coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals

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

Exam 3: Interest Rates and Rates of Return

Which of the following is a coupon bond?

Why isn't the current yield a good indicator of holding a bond?

A corporation issues a three-year bond with a coupon of $50 and a face value of $1000. A year later, market interest rates have declined to 4%. What is the price of the bond a year after it was issued? Report your answer to the nearest dollar.

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

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

How long does it take prices of securities to adjust so as to eliminate arbitrage profits?

Which of the following types of mortgage loans became more common during the housing boom of the early-to-mid 2000s?

How are TIPS adjusted for inflation?

Suppose Matt's New Cars issues and sells a one-year discount bond for $9,259 and repays $10,000 at maturity. The interest rate on this bond would be

Suppose a coupon bond with a par value of $1000 is currently priced at $950 and has a coupon of $40. Which of the following is true?

Suppose you purchase a bond with a coupon of $30 for $1025. You sell it one year later for $1050. What rate of return did you earn? Report a percentage with two decimal places.

Issuers of coupon bonds

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to:

If, while you are holding a coupon bond, the interest rates on other similar bonds fall, you can be sure that

On a coupon bond, the yield to maturity

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

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 coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals

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