Question 1

Based on expectations theory,the term structure of interest rates will be _____ anytime investors believe that interest rates will be higher in the future than they are today.

Accepted Answer

A)  volatile 
B)  flat 
C)  downward sloping 
D)  upward sloping 
E)  vertical 
A)  volatile 
B)  flat 
C)  downward sloping 
D)  upward sloping 
E)  vertical

Question 2

A $50,000 face value bond matures in 75 days and has a bank discount yield of 3.75 percent.What is the current value of the bond?

Accepted Answer

A)  $49,392.19 
B)  $49,473.14 
C)  $49,486.47 
D)  $49,571.11 
E)  $49,609.38 
A)  $49,392.19 
B)  $49,473.14 
C)  $49,486.47 
D)  $49,571.11 
E)  $49,609.38

Question 3

A bond has a face value of $30,000 and matures in 62 days.What is the bank discount yield if the bond is currently selling for $29,750?

Accepted Answer

A)  4.67 percent 
B)  4.84 percent 
C)  5.48 percent 
D)  5.78 percent 
E)  6.03 percent 
A)  4.67 percent 
B)  4.84 percent 
C)  5.48 percent 
D)  5.78 percent 
E)  6.03 percent

Question 4

What is the bond equivalent yield on a 120-day Treasury bill that has a bank discount yield of 3.00 percent?

Accepted Answer

A)  2.97 percent 
B)  2.99 percent 
C)  3.02 percent 
D)  3.04 percent 
E)  3.07 percent 
A)  2.97 percent 
B)  2.99 percent 
C)  3.02 percent 
D)  3.04 percent 
E)  3.07 percent

Question 5

The one-year interest rate is 4.80 percent and the two-year interest rate is 5.13 percent.What is the one year interest rate one year from now? Assume the rates are effective annual rates.

Accepted Answer

A)  5.02 percent 
B)  5.23 percent 
C)  5.46 percent 
D)  5.51 percent 
E)  5.74 percent 
A)  5.02 percent 
B)  5.23 percent 
C)  5.46 percent 
D)  5.51 percent 
E)  5.74 percent

Question 6

The following premiums apply to a 6-month bond: interest rate risk premium = 0.22 percent; real rate = 3.50 percent; default premium = 0.12 percent; inflation premium = 1.45 percent.What is the expected difference in nominal interest rates between a 6-month risky security and a 6-month,default-free security?

Accepted Answer

A)  0.12 percent 
B)  0.34 percent 
C)  0.37 percent 
D)  1.57 percent 
E)  1.60 percent 
A)  0.12 percent 
B)  0.34 percent 
C)  0.37 percent 
D)  1.57 percent 
E)  1.60 percent

Question 7

Which one of the following describes a banker's acceptance?

Accepted Answer

A)  agreement to loan money in exchange for an agreement by the borrower to offer an asset as collateral 
B)  written agreement to loan funds in the future once the loan terms have been accepted 
C)  postdated check with payment guaranteed by a bank 
D)  agreement by a bank to provide short-term funds for the construction phase of a project 
E)  the sale of a security by a bank accompanied by an agreement to repurchase the security the following day 
A)  agreement to loan money in exchange for an agreement by the borrower to offer an asset as collateral 
B)  written agreement to loan funds in the future once the loan terms have been accepted 
C)  postdated check with payment guaranteed by a bank 
D)  agreement by a bank to provide short-term funds for the construction phase of a project 
E)  the sale of a security by a bank accompanied by an agreement to repurchase the security the following day

Question 8

Which one of the following is defined as the relationship between the interest rate on default-free,pure discount bonds and the time to maturity?

Accepted Answer

A)  discount rate curve 
B)  Treasury yield curve 
C)  risk premium structure 
D)  term structure of interest rates 
E)  market interest rate curve 
A)  discount rate curve 
B)  Treasury yield curve 
C)  risk premium structure 
D)  term structure of interest rates 
E)  market interest rate curve

Question 9

Modern term structure theory supports the contention that the term structure of interest rates will:

Accepted Answer

A)  be upward sloping. 
B)  be downward sloping. 
C)  be upward sloping in the short-term and relatively flat in the long-term. 
D)  be constant over time. 
E)  change over time. 
A)  be upward sloping. 
B)  be downward sloping. 
C)  be upward sloping in the short-term and relatively flat in the long-term. 
D)  be constant over time. 
E)  change over time.

Question 10

A one-year STRIPS sells at an interest rate of 3.20 percent and a two-year STRIPS sells at an interest rate of 3.90 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

Accepted Answer

A)  4.20 percent 
B)  4.30 percent 
C)  4.40 percent 
D)  4.50 percent 
E)  4.60 percent 
A)  4.20 percent 
B)  4.30 percent 
C)  4.40 percent 
D)  4.50 percent 
E)  4.60 percent

Question 11

A Treasury bill has a face value of $65,000,an asked yield of 3.05 percent,and matures in 60 days.What is the price of this bill?

Accepted Answer

A)  $64,675.74 
B)  $64,777.60 
C)  $64,819.80 
D)  $64,868.00 
E)  $64,878.42 
A)  $64,675.74 
B)  $64,777.60 
C)  $64,819.80 
D)  $64,868.00 
E)  $64,878.42

Question 12

A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50 percent.What is the current dollar price of this security?

Accepted Answer

A)  $21,199.68 
B)  $23,206.44 
C)  $25,038.18 
D)  $26,141.41 
E)  $28,809.18 
A)  $21,199.68 
B)  $23,206.44 
C)  $25,038.18 
D)  $26,141.41 
E)  $28,809.18

Question 13

Which one of the following facilitates international trade?

Accepted Answer

A)  secured bond 
B)  Treasury security 
C)  banker's acceptance 
D)  commercial paper 
E)  Eurodollar loan 
A)  secured bond 
B)  Treasury security 
C)  banker's acceptance 
D)  commercial paper 
E)  Eurodollar loan

Question 14

A $100,000 or more term deposit at a bank is called which one of the following?

Accepted Answer

A)  interbank deposit 
B)  bankers' acceptance 
C)  collateralized deposit 
D)  call bond 
E)  certificate of deposit 
A)  interbank deposit 
B)  bankers' acceptance 
C)  collateralized deposit 
D)  call bond 
E)  certificate of deposit

Question 15

Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?

Accepted Answer

A)  commercial paper 
B)  U.S. Treasury bill 
C)  banker's acceptance 
D)  Eurodollar money market 
E)  certificates of deposit 
A)  commercial paper 
B)  U.S. Treasury bill 
C)  banker's acceptance 
D)  Eurodollar money market 
E)  certificates of deposit

Question 16

Which one of the following applies to "Yankee bonds"?

Accepted Answer

A)  U.S. corporate bonds that are sold internationally 
B)  U.S. corporate bonds denominated in a foreign currency 
C)  U.S. government bonds that are sold internationally 
D)  any bond that is denominated in U.S. dollars 
E)  foreign-issued bonds sold in the U.S. 
A)  U.S. corporate bonds that are sold internationally 
B)  U.S. corporate bonds denominated in a foreign currency 
C)  U.S. government bonds that are sold internationally 
D)  any bond that is denominated in U.S. dollars 
E)  foreign-issued bonds sold in the U.S.

Question 17

The following premiums apply to a 3-month bond: interest rate risk premium = 0.2 percent; real return = 1.9 percent; default premium = 0.8 percent; inflation premium = 1.4 percent.What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

Accepted Answer

A)  1.9 percent 
B)  2.0 percent 
C)  2.1 percent 
D)  3.3 percent 
E)  3.6 percent 
A)  1.9 percent 
B)  2.0 percent 
C)  2.1 percent 
D)  3.3 percent 
E)  3.6 percent

Question 18

Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank.Which one of the following interest rates will be charged on this loan?

Accepted Answer

A)  money market 
B)  Federal funds 
C)  discount 
D)  prime 
E)  Treasury bill 
A)  money market 
B)  Federal funds 
C)  discount 
D)  prime 
E)  Treasury bill

Question 19

Which of the following comprise the nominal interest rate on default-free securities according to the modern view of the term structure of interest rates?
I.liquidity premium
II.real rate
III.interest rate risk premium
IV.inflation premium

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  III and IV only 
D)  II, III, and IV only 
E)  I, II, III, and IV 
A)  I and II only 
B)  II and III only 
C)  III and IV only 
D)  II, III, and IV only 
E)  I, II, III, and IV

Question 20

Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?

Accepted Answer

A)  discount 
B)  Fed funds 
C)  financial overnight 
D)  daily 
E)  institutional 
A)  discount 
B)  Fed funds 
C)  financial overnight 
D)  daily 
E)  institutional

Based on expectations theory,the term structure of interest rates will be _____ anytime investors believe that interest rates will be higher in the future than they are today.

A $50,000 face value bond matures in 75 days and has a bank discount yield of 3.75 percent.What is the current value of the bond?

A bond has a face value of $30,000 and matures in 62 days.What is the bank discount yield if the bond is currently selling for $29,750?

What is the bond equivalent yield on a 120-day Treasury bill that has a bank discount yield of 3.00 percent?

The one-year interest rate is 4.80 percent and the two-year interest rate is 5.13 percent.What is the one year interest rate one year from now? Assume the rates are effective annual rates.

Which one of the following describes a banker's acceptance?

Which one of the following is defined as the relationship between the interest rate on default-free,pure discount bonds and the time to maturity?

Modern term structure theory supports the contention that the term structure of interest rates will:

A one-year STRIPS sells at an interest rate of 3.20 percent and a two-year STRIPS sells at an interest rate of 3.90 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

A Treasury bill has a face value of $65,000,an asked yield of 3.05 percent,and matures in 60 days.What is the price of this bill?

A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50 percent.What is the current dollar price of this security?

Which one of the following facilitates international trade?

A $100,000 or more term deposit at a bank is called which one of the following?

Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?

Which one of the following applies to "Yankee bonds"?

The following premiums apply to a 3-month bond: interest rate risk premium = 0.2 percent; real return = 1.9 percent; default premium = 0.8 percent; inflation premium = 1.4 percent.What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank.Which one of the following interest rates will be charged on this loan?

Which of the following comprise the nominal interest rate on default-free securities according to the modern view of the term structure of interest rates? I.liquidity premium II.real rate III.interest rate risk premium IV.inflation premium

Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 9: Interest Rates

Based on expectations theory,the term structure of interest rates will be _____ anytime investors believe that interest rates will be higher in the future than they are today.

A $50,000 face value bond matures in 75 days and has a bank discount yield of 3.75 percent.What is the current value of the bond?

A bond has a face value of $30,000 and matures in 62 days.What is the bank discount yield if the bond is currently selling for $29,750?

What is the bond equivalent yield on a 120-day Treasury bill that has a bank discount yield of 3.00 percent?

The one-year interest rate is 4.80 percent and the two-year interest rate is 5.13 percent.What is the one year interest rate one year from now? Assume the rates are effective annual rates.

Which one of the following describes a banker's acceptance?

Which one of the following is defined as the relationship between the interest rate on default-free,pure discount bonds and the time to maturity?

Modern term structure theory supports the contention that the term structure of interest rates will:

A one-year STRIPS sells at an interest rate of 3.20 percent and a two-year STRIPS sells at an interest rate of 3.90 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

A Treasury bill has a face value of $65,000,an asked yield of 3.05 percent,and matures in 60 days.What is the price of this bill?

A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50 percent.What is the current dollar price of this security?

Which one of the following facilitates international trade?

A $100,000 or more term deposit at a bank is called which one of the following?

Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?

Which one of the following applies to "Yankee bonds"?

The following premiums apply to a 3-month bond: interest rate risk premium = 0.2 percent; real return = 1.9 percent; default premium = 0.8 percent; inflation premium = 1.4 percent.What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank.Which one of the following interest rates will be charged on this loan?

Which of the following comprise the nominal interest rate on default-free securities according to the modern view of the term structure of interest rates? I.liquidity premium II.real rate III.interest rate risk premium IV.inflation premium

Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters