Question 1

A $20,000 face value STRIPS is currently quoted at 38.642 and has 8 years to maturity.What is the yield-to-maturity?

Accepted Answer

A)  6.26 percent 
B)  6.30 percent 
C)  12.25 percent 
D)  12.65 percent 
E)  12.83 percent 
A)  6.26 percent 
B)  6.30 percent 
C)  12.25 percent 
D)  12.65 percent 
E)  12.83 percent

Question 2

Based solely on the maturity preference theory,long-term interest rates:

Accepted Answer

A)  should equal short-term rates. 
B)  are unrelated to short-term rates. 
C)  may be higher than or lower than short-term rates. 
D)  should be lower than short-term rates. 
E)  should be higher than short-term rates. 
A)  should equal short-term rates. 
B)  are unrelated to short-term rates. 
C)  may be higher than or lower than short-term rates. 
D)  should be lower than short-term rates. 
E)  should be higher than short-term rates.

Question 3

A one-year STRIPS sells at an interest rate of 3.15 percent and a two-year STRIPS sells at an interest rate of 3.88 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

Accepted Answer

A)  4.44 percent 
B)  4.50 percent 
C)  4.54 percent 
D)  4.57 percent 
E)  4.62 percent 
A)  4.44 percent 
B)  4.50 percent 
C)  4.54 percent 
D)  4.57 percent 
E)  4.62 percent

Question 4

The Treasury yield curve is a graph which plots Treasury yields against which one of the following?

Accepted Answer

A)  corporate bond yields 
B)  Fed funds rate 
C)  maturities 
D)  inflation rates 
E)  S&P 500 yield 
A)  corporate bond yields 
B)  Fed funds rate 
C)  maturities 
D)  inflation rates 
E)  S&P 500 yield

Question 5

A bond has a nominal rate of return of 5.87 percent and the inflation rate is 4.13 percent.What is the approximate real rate?

Accepted Answer

A)  1.62 percent 
B)  1.70 percent 
C)  1.74 percent 
D)  1.83 percent 
E)  1.88 percent 
A)  1.62 percent 
B)  1.70 percent 
C)  1.74 percent 
D)  1.83 percent 
E)  1.88 percent

Question 6

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 90 days.What is the price of this bill?

Accepted Answer

A)  $74,440.17 
B)  $74,477.60 
C)  $74,519.80 
D)  $74,568.00 
E)  $74,578.42 
A)  $74,440.17 
B)  $74,477.60 
C)  $74,519.80 
D)  $74,568.00 
E)  $74,578.42

Question 7

The variable f1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Accepted Answer

A)  based on the prior one-year rate. 
B)  at 1 percent. 
C)  based on a 1 percent increase from the current rate. 
D)  commencing in one year. 
E)  based on a 1 percent probability of occurrence. 
A)  based on the prior one-year rate. 
B)  at 1 percent. 
C)  based on a 1 percent increase from the current rate. 
D)  commencing in one year. 
E)  based on a 1 percent probability of occurrence.

Question 8

Which one of the following best describes a real interest rate?

Accepted Answer

A)  current rate on a U.S. Treasury bill 
B)  nominal rate minus the risk-premium on an individual security 
C)  market return minus the risk-free rate 
D)  nominal rate minus inflation 
E)  historical rate rather than a projected rate 
A)  current rate on a U.S. Treasury bill 
B)  nominal rate minus the risk-premium on an individual security 
C)  market return minus the risk-free rate 
D)  nominal rate minus inflation 
E)  historical rate rather than a projected rate

Question 9

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Accepted Answer

A)  $2,998.09 
B)  $3,009.16 
C)  $3,105.02 
D)  $3,128.10 
E)  $3,133.40 
A)  $2,998.09 
B)  $3,009.16 
C)  $3,105.02 
D)  $3,128.10 
E)  $3,133.40

Question 10

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Accepted Answer

A)  expectations theory 
B)  forward rate theory 
C)  market hypothesis 
D)  maturity preference theory 
E)  Fisher hypothesis 
A)  expectations theory 
B)  forward rate theory 
C)  market hypothesis 
D)  maturity preference theory 
E)  Fisher hypothesis

Question 11

Which one of the following statements is correct?

Accepted Answer

A)  The yield curve relates time to maturity to interest rates on zero-coupon bonds. 
B)  The yield curve is based on Treasury bill yields. 
C)  The term structure of interest rates is based on default-free, pure discount securities. 
D)  The term structure of interest rates is based on default-free, coupon bonds. 
E)  The yield curve ignores default risk while the term structure includes a default risk premium. 
A)  The yield curve relates time to maturity to interest rates on zero-coupon bonds. 
B)  The yield curve is based on Treasury bill yields. 
C)  The term structure of interest rates is based on default-free, pure discount securities. 
D)  The term structure of interest rates is based on default-free, coupon bonds. 
E)  The yield curve ignores default risk while the term structure includes a default risk premium.

Question 12

The rate which an investor pays a brokerage firm for a margin loan is based on a negotiated premium which is added to which one of the following rates?

Accepted Answer

A)  prime 
B)  call 
C)  discount 
D)  T-bill 
E)  Federal funds 
A)  prime 
B)  call 
C)  discount 
D)  T-bill 
E)  Federal funds

Question 13

Treasury STRIPS are:

Accepted Answer

A)  zero-coupon bonds issued by the U.S. Treasury with maturities of one year or less. 
B)  currently quoted in 32nds of a dollar. 
C)  zero-coupon securities. 
D)  a type of mortgage bond. 
E)  coupon securities created from the interest and principal payments of Treasury bonds. 
A)  zero-coupon bonds issued by the U.S. Treasury with maturities of one year or less. 
B)  currently quoted in 32nds of a dollar. 
C)  zero-coupon securities. 
D)  a type of mortgage bond. 
E)  coupon securities created from the interest and principal payments of Treasury bonds.

Question 14

Which one of the following borrowers will pay the rates depicted on a Treasury yield curve?

Accepted Answer

A)  large corporation 
B)  municipal government 
C)  bank's best customers 
D)  high-risk borrower 
E)  default-free borrower 
A)  large corporation 
B)  municipal government 
C)  bank's best customers 
D)  high-risk borrower 
E)  default-free borrower

Question 15

Your credit card has an annual percentage rate of 18.9 percent and compounds interest daily.What is the effective annual rate?

Accepted Answer

A)  19.47 percent 
B)  19.58 percent 
C)  19.82 percent 
D)  19.94 percent 
E)  20.80 percent 
A)  19.47 percent 
B)  19.58 percent 
C)  19.82 percent 
D)  19.94 percent 
E)  20.80 percent

Question 16

Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?

Accepted Answer

A)  institutional 
B)  financial overnight 
C)  Federal funds 
D)  monetary 
E)  daily 
A)  institutional 
B)  financial overnight 
C)  Federal funds 
D)  monetary 
E)  daily

Question 17

A Treasury bill is quoted at a bank discount yield of 1.21 percent and has 15 days to maturity.What is the bond equivalent yield given that this is a leap year?

Accepted Answer

A)  1.16 percent 
B)  1.18 percent 
C)  1.20 percent 
D)  1.22 percent 
E)  1.23 percent 
A)  1.16 percent 
B)  1.18 percent 
C)  1.20 percent 
D)  1.22 percent 
E)  1.23 percent

Question 18

A two-year STRIPS sells at an interest rate of 3.84 percent and a three-year STRIPS sells at a rate of 3.97 percent.What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

Accepted Answer

A)  4.23 percent 
B)  4.36 percent 
C)  4.41 percent 
D)  4.45 percent 
E)  4.50 percent 
A)  4.23 percent 
B)  4.36 percent 
C)  4.41 percent 
D)  4.45 percent 
E)  4.50 percent

Question 19

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Accepted Answer

A)  Freddie Mac 
B)  Ginnie Mae 
C)  T-note 
D)  T-bill 
E)  T-bond 
A)  Freddie Mac 
B)  Ginnie Mae 
C)  T-note 
D)  T-bill 
E)  T-bond

Question 20

Pure discount bonds which are created by separating the interest and principal payments from U.S.Treasury bonds are called U.S.Treasury:

Accepted Answer

A)  notes. 
B)  bills. 
C)  STRIPS. 
D)  SWAPS. 
E)  tax-exempts. 
A)  notes. 
B)  bills. 
C)  STRIPS. 
D)  SWAPS. 
E)  tax-exempts.

A $20,000 face value STRIPS is currently quoted at 38.642 and has 8 years to maturity.What is the yield-to-maturity?

Based solely on the maturity preference theory,long-term interest rates:

A one-year STRIPS sells at an interest rate of 3.15 percent and a two-year STRIPS sells at an interest rate of 3.88 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

The Treasury yield curve is a graph which plots Treasury yields against which one of the following?

A bond has a nominal rate of return of 5.87 percent and the inflation rate is 4.13 percent.What is the approximate real rate?

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 90 days.What is the price of this bill?

The variable f_1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Which one of the following best describes a real interest rate?

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Which one of the following statements is correct?

The rate which an investor pays a brokerage firm for a margin loan is based on a negotiated premium which is added to which one of the following rates?

Treasury STRIPS are:

Which one of the following borrowers will pay the rates depicted on a Treasury yield curve?

Your credit card has an annual percentage rate of 18.9 percent and compounds interest daily.What is the effective annual rate?

Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?

A Treasury bill is quoted at a bank discount yield of 1.21 percent and has 15 days to maturity.What is the bond equivalent yield given that this is a leap year?

A two-year STRIPS sells at an interest rate of 3.84 percent and a three-year STRIPS sells at a rate of 3.97 percent.What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Pure discount bonds which are created by separating the interest and principal payments from U.S.Treasury bonds are called U.S.Treasury:

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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

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Exam 9: Interest Rates

A $20,000 face value STRIPS is currently quoted at 38.642 and has 8 years to maturity.What is the yield-to-maturity?

Based solely on the maturity preference theory,long-term interest rates:

A one-year STRIPS sells at an interest rate of 3.15 percent and a two-year STRIPS sells at an interest rate of 3.88 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

The Treasury yield curve is a graph which plots Treasury yields against which one of the following?

A bond has a nominal rate of return of 5.87 percent and the inflation rate is 4.13 percent.What is the approximate real rate?

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 90 days.What is the price of this bill?

The variable f1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Which one of the following best describes a real interest rate?

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Which one of the following statements is correct?

The rate which an investor pays a brokerage firm for a margin loan is based on a negotiated premium which is added to which one of the following rates?

Treasury STRIPS are:

Which one of the following borrowers will pay the rates depicted on a Treasury yield curve?

Your credit card has an annual percentage rate of 18.9 percent and compounds interest daily.What is the effective annual rate?

Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?

A Treasury bill is quoted at a bank discount yield of 1.21 percent and has 15 days to maturity.What is the bond equivalent yield given that this is a leap year?

A two-year STRIPS sells at an interest rate of 3.84 percent and a three-year STRIPS sells at a rate of 3.97 percent.What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Pure discount bonds which are created by separating the interest and principal payments from U.S.Treasury bonds are called U.S.Treasury:

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

The variable f_1,1 as used in the expectations theory is interpreted as the forward rate for one year: