Question 1

What are three reasons that banks charge interest on loans?

Accepted Answer

Banks charge interest on loans

Question 2

Which of the following will result in a decrease in the price of an existing corporate bond?

Accepted Answer

A) lower expectations of inflation 
B) new bonds issued at a lower interest rate 
C) increased default risk 
D) all of the above 
A) lower expectations of inflation 
B) new bonds issued at a lower interest rate 
C) increased default risk 
D) all of the above

Question 3

Suppose you put $500 in your savings account and earn 4% interest per year. How much will you have in your account after two years? Be sure to round off to the nearest cent

Accepted Answer

$500 × 1.0

Question 4

As the housing bubble began to burst in 2006-2008, investors would only buy mortgage-backed securities at high yields to compensate for higher perceived default risk. As a result::

Accepted Answer

A) banks suffered significant capital losses as the value of their holdings of mortgage-backed securities declined 
B) funds available for mortgages increased 
C) bank profits rose as they earned higher interest on mortgages 
D) the price of mortgage-backed securities tended to rise due to the higher yields 
A) banks suffered significant capital losses as the value of their holdings of mortgage-backed securities declined 
B) funds available for mortgages increased 
C) bank profits rose as they earned higher interest on mortgages 
D) the price of mortgage-backed securities tended to rise due to the higher yields

Question 5

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant. At the end of one year Harry's Restaurant will pay First National

Accepted Answer

A) $934.58. 
B) $1007. 
C) $1700. 
D) $1070. 
A) $934.58. 
B) $1007. 
C) $1700. 
D) $1070.

Question 6

Which of the following represents the equation that would be used to determine the yield to maturity of a corporate bond with a face value of $1000, price of $1100, coupon rate of 5%, and maturity in three years?

Accepted Answer

A) $1100 = $1500/(1 + i)3 
B) $1100 = $500/(1 + i)+ $500/(1 + i)2 + 1000/(1 + i)3 
C) $1100 = $500/(1 + i)+ $500/(1 + i)2 + 500/(1 + i)3 
D) $1100 = $500/(1 + i)+ $500/(1 + i)2 + 1500/(1 + i)3 
A) $1100 = $1500/(1 + i)3 
B) $1100 = $500/(1 + i)+ $500/(1 + i)2 + 1000/(1 + i)3 
C) $1100 = $500/(1 + i)+ $500/(1 + i)2 + 500/(1 + i)3 
D) $1100 = $500/(1 + i)+ $500/(1 + i)2 + 1500/(1 + i)3

Question 7

If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much will you have in the account at the end of three years?

Accepted Answer

A) $8,396 
B) $11,800 
C) $11,910 
D) $10,600 
A) $8,396 
B) $11,800 
C) $11,910 
D) $10,600

Question 8

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 9

Suppose a bond has a coupon of $75, face value of $1000, and current price of $1100. What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Accepted Answer

The coupon rate is $

Question 10

Which of the following involves payment of part of the face value or principal prior to maturity?

Accepted Answer

A) fixed-payment loan 
B) coupon bond 
C) discount bond 
D) simple loan 
A) fixed-payment loan 
B) coupon bond 
C) discount bond 
D) simple loan

Question 11

Interest-rate risk can best be characterized as the risk that

Accepted Answer

A) you could have earned a higher interest rate if you waited to purchase a bond. 
B) fluctuations in the price of a financial asset in response to changes in market interest rates. 
C) you could have gotten a lower interest rate if you waited to lock in a mortgage. 
D) short-term interest rates may exceed long-term interest rates. 
A) you could have earned a higher interest rate if you waited to purchase a bond. 
B) fluctuations in the price of a financial asset in response to changes in market interest rates. 
C) you could have gotten a lower interest rate if you waited to lock in a mortgage. 
D) short-term interest rates may exceed long-term interest rates.

What are three reasons that banks charge interest on loans?

Which of the following will result in a decrease in the price of an existing corporate bond?

Suppose you put $500 in your savings account and earn 4% interest per year. How much will you have in your account after two years? Be sure to round off to the nearest cent

As the housing bubble began to burst in 2006-2008, investors would only buy mortgage-backed securities at high yields to compensate for higher perceived default risk. As a result::

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant. At the end of one year Harry's Restaurant will pay First National

Which of the following represents the equation that would be used to determine the yield to maturity of a corporate bond with a face value of $1000, price of $1100, coupon rate of 5%, and maturity in three years?

If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much will you have in the account at the end of three years?

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?

Suppose a bond has a coupon of $75, face value of $1000, and current price of $1100. What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Which of the following involves payment of part of the face value or principal prior to maturity?

Interest-rate risk can best be characterized as the risk 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

What are three reasons that banks charge interest on loans?

Which of the following will result in a decrease in the price of an existing corporate bond?

Suppose you put $500 in your savings account and earn 4% interest per year. How much will you have in your account after two years? Be sure to round off to the nearest cent

As the housing bubble began to burst in 2006-2008, investors would only buy mortgage-backed securities at high yields to compensate for higher perceived default risk. As a result::

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant. At the end of one year Harry's Restaurant will pay First National

Which of the following represents the equation that would be used to determine the yield to maturity of a corporate bond with a face value of $1000, price of $1100, coupon rate of 5%, and maturity in three years?

If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much will you have in the account at the end of three years?

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?

Suppose a bond has a coupon of $75, face value of $1000, and current price of $1100. What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

Which of the following involves payment of part of the face value or principal prior to maturity?

Interest-rate risk can best be characterized as the risk 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