Question 1

Which one of the following rates is the normally quoted rate?

Accepted Answer

A)  nominal 
B)  deflated 
C)  inflated 
D)  real 
E)  indexed 
A)  nominal 
B)  deflated 
C)  inflated 
D)  real 
E)  indexed

Question 2

A $60,000 face value STRIPS is quoted at 96.100.What is the dollar price?

Accepted Answer

A)  $57,267.50 
B)  $57,350.00 
C)  $57,415.00 
D)  $57,577.78 
E)  $57,660.00 
A)  $57,267.50 
B)  $57,350.00 
C)  $57,415.00 
D)  $57,577.78 
E)  $57,660.00

Question 3

Which one of the following statements is correct?

Accepted Answer

A)  All real interest rates will be positive as long as the inflation rate is positive. 
B)  Real rates must exceed inflation rates. 
C)  Short-term interest rates are affected by future inflation expectations. 
D)  Treasury bill returns tend to vary in direct relation to inflation rates. 
E)  The Fisher hypothesis advocates that real interest rates follow inflation rates. 
A)  All real interest rates will be positive as long as the inflation rate is positive. 
B)  Real rates must exceed inflation rates. 
C)  Short-term interest rates are affected by future inflation expectations. 
D)  Treasury bill returns tend to vary in direct relation to inflation rates. 
E)  The Fisher hypothesis advocates that real interest rates follow inflation rates.

Question 4

A pure discount security is an interest-bearing asset that pays:

Accepted Answer

A)  interest on a semi-annual basis. 
B)  interest on an annual basis. 
C)  a single payment at maturity. 
D)  no interest. 
E)  a variable-rate interest. 
A)  interest on a semi-annual basis. 
B)  interest on an annual basis. 
C)  a single payment at maturity. 
D)  no interest. 
E)  a variable-rate interest.

Question 5

Southern Bank needs to borrow money overnight from the Federal Reserve in order to meet its reserve requirements.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 
A)  money market 
B)  Federal funds 
C)  discount 
D)  prime 
E)  Treasury

Question 6

Which of the following will increase the price of a money market instrument computed using a discount yield?
I.increase in discount yield
II.decrease in discount yield
III.increase in days to maturity
IV.decrease in days to maturity

Accepted Answer

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

Question 7

A $75,000 face value STRIPS is quoted at 95.100.What is the dollar price?

Accepted Answer

A)  $71,067.50 
B)  $71,150.00 
C)  $71,215.00 
D)  $71,277.78 
E)  $71,325.00 
A)  $71,067.50 
B)  $71,150.00 
C)  $71,215.00 
D)  $71,277.78 
E)  $71,325.00

Question 8

The overnight repurchase rate is the rate charged on overnight loans which are collateralized by which one of the following securities?

Accepted Answer

A)  Treasury securities 
B)  municipal bonds 
C)  commercial paper 
D)  banker's acceptances 
E)  Eurodollar deposits 
A)  Treasury securities 
B)  municipal bonds 
C)  commercial paper 
D)  banker's acceptances 
E)  Eurodollar deposits

Question 9

What is the one year interest rate one year from now if the current one-year interest rate is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are effective annual rates.

Accepted Answer

A)  3.62 percent 
B)  3.67 percent 
C)  3.71 percent 
D)  3.75 percent 
E)  3.88 percent 
A)  3.62 percent 
B)  3.67 percent 
C)  3.71 percent 
D)  3.75 percent 
E)  3.88 percent

Question 10

You want to purchase a security that will pay you $1,000 six years from now.If you want to earn an annual nominal rate of 5.35 percent,how much should you pay for this investment today?

Accepted Answer

A)  $727.41 
B)  $731.46 
C)  $741.41 
D)  $743.51 
E)  $762.01 
A)  $727.41 
B)  $731.46 
C)  $741.41 
D)  $743.51 
E)  $762.01

Question 11

A Treasury bill has a face value of $100,000,a price of $99,797.12,and matures in 35 days.What is the asked yield?

Accepted Answer

A)  1.98 percent 
B)  2.12 percent 
C)  2.28 percent 
D)  3.67 percent 
E)  3.74 percent 
A)  1.98 percent 
B)  2.12 percent 
C)  2.28 percent 
D)  3.67 percent 
E)  3.74 percent

Question 12

The bond equivalent yield adjusts for leap years by using 366 days starting with:

Accepted Answer

A)  January 1 of the leap year and ending with December 31 of the leap year. 
B)  February 1 of the year prior to the leap year and ending with February 29 of the leap year. 
C)  March 1 of the year prior to the leap year and ending with February 29 of the leap year. 
D)  the second quarter of the year prior to the leap year and ending with the first quarter of the leap year. 
E)  February 1 of the leap year and ending with February 29 of the leap year. 
A)  January 1 of the leap year and ending with December 31 of the leap year. 
B)  February 1 of the year prior to the leap year and ending with February 29 of the leap year. 
C)  March 1 of the year prior to the leap year and ending with February 29 of the leap year. 
D)  the second quarter of the year prior to the leap year and ending with the first quarter of the leap year. 
E)  February 1 of the leap year and ending with February 29 of the leap year.

Question 13

Which one of the following theories states that the term structure of interest rates reveals the financial market's projections of future interest rates?

Accepted Answer

A)  market rate theory 
B)  market yield theory 
C)  Fisher hypothesis 
D)  expectations theory 
E)  rational rate hypothesis 
A)  market rate theory 
B)  market yield theory 
C)  Fisher hypothesis 
D)  expectations theory 
E)  rational rate hypothesis

Question 14

A $40,000 face value bond matures in 100 days and has a bank discount yield of 3.86 percent.What is the current value of the bond?

Accepted Answer

A)  $39,392.19 
B)  $39,473.14 
C)  $39,486.47 
D)  $39,571.11 
E)  $39,680.00 
A)  $39,392.19 
B)  $39,473.14 
C)  $39,486.47 
D)  $39,571.11 
E)  $39,680.00

Question 15

Which one of the following is the method used to quote interest rates on money market instruments?

Accepted Answer

A)  short basis 
B)  floating-rate basis 
C)  call rate method 
D)  bank discount basis 
E)  prime rate method 
A)  short basis 
B)  floating-rate basis 
C)  call rate method 
D)  bank discount basis 
E)  prime rate method

Question 16

Which one of the following is used by Treasury dealers to indicate the price they are willing to pay to purchase a Treasury bill?

Accepted Answer

A)  par rate 
B)  bid discount 
C)  face rate 
D)  asked discount 
E)  bank discount 
A)  par rate 
B)  bid discount 
C)  face rate 
D)  asked discount 
E)  bank discount

Question 17

Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?

Accepted Answer

A)  discount 
B)  Federal funds 
C)  prime 
D)  bid 
E)  call money 
A)  discount 
B)  Federal funds 
C)  prime 
D)  bid 
E)  call money

Question 18

You want to earn a real rate of return of 4.00 percent at a time when the inflation rate is 2.05 percent.What is the approximate nominal rate which you must earn?

Accepted Answer

A)  5.75 percent 
B)  5.95 percent 
C)  6.05 percent 
D)  6.15 percent 
E)  6.25 percent 
A)  5.75 percent 
B)  5.95 percent 
C)  6.05 percent 
D)  6.15 percent 
E)  6.25 percent

Question 19

According to the expectations theory and the Fisher hypothesis,a downward-sloping term structure is indicative of which of the following based on market expectations?
I.nominal interest rates are expected to increase
II.nominal interest rates are expected to decline
III.inflation rates are expected to increase
IV.inflation rates are expected to decrease

Accepted Answer

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

Question 20

The market segmentation theory states that interest rates on debt vary dependent upon market segments which are segmented based upon which one of the following?

Accepted Answer

A)  time to maturity 
B)  principal amount 
C)  use of funds 
D)  type of lender 
E)  type of borrower 
A)  time to maturity 
B)  principal amount 
C)  use of funds 
D)  type of lender 
E)  type of borrower

Which one of the following rates is the normally quoted rate?

A $60,000 face value STRIPS is quoted at 96.100.What is the dollar price?

Which one of the following statements is correct?

A pure discount security is an interest-bearing asset that pays:

Southern Bank needs to borrow money overnight from the Federal Reserve in order to meet its reserve requirements.Which one of the following interest rates will be charged on this loan?

Which of the following will increase the price of a money market instrument computed using a discount yield? I.increase in discount yield II.decrease in discount yield III.increase in days to maturity IV.decrease in days to maturity

A $75,000 face value STRIPS is quoted at 95.100.What is the dollar price?

The overnight repurchase rate is the rate charged on overnight loans which are collateralized by which one of the following securities?

What is the one year interest rate one year from now if the current one-year interest rate is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are effective annual rates.

You want to purchase a security that will pay you $1,000 six years from now.If you want to earn an annual nominal rate of 5.35 percent,how much should you pay for this investment today?

A Treasury bill has a face value of $100,000,a price of $99,797.12,and matures in 35 days.What is the asked yield?

The bond equivalent yield adjusts for leap years by using 366 days starting with:

Which one of the following theories states that the term structure of interest rates reveals the financial market's projections of future interest rates?

A $40,000 face value bond matures in 100 days and has a bank discount yield of 3.86 percent.What is the current value of the bond?

Which one of the following is the method used to quote interest rates on money market instruments?

Which one of the following is used by Treasury dealers to indicate the price they are willing to pay to purchase a Treasury bill?

Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?

You want to earn a real rate of return of 4.00 percent at a time when the inflation rate is 2.05 percent.What is the approximate nominal rate which you must earn?

The market segmentation theory states that interest rates on debt vary dependent upon market segments which are segmented based upon which one of the following?

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

Which one of the following rates is the normally quoted rate?

A $60,000 face value STRIPS is quoted at 96.100.What is the dollar price?

Which one of the following statements is correct?

A pure discount security is an interest-bearing asset that pays:

Southern Bank needs to borrow money overnight from the Federal Reserve in order to meet its reserve requirements.Which one of the following interest rates will be charged on this loan?

Which of the following will increase the price of a money market instrument computed using a discount yield? I.increase in discount yield II.decrease in discount yield III.increase in days to maturity IV.decrease in days to maturity

A $75,000 face value STRIPS is quoted at 95.100.What is the dollar price?

The overnight repurchase rate is the rate charged on overnight loans which are collateralized by which one of the following securities?

What is the one year interest rate one year from now if the current one-year interest rate is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are effective annual rates.

You want to purchase a security that will pay you $1,000 six years from now.If you want to earn an annual nominal rate of 5.35 percent,how much should you pay for this investment today?

A Treasury bill has a face value of $100,000,a price of $99,797.12,and matures in 35 days.What is the asked yield?

The bond equivalent yield adjusts for leap years by using 366 days starting with:

Which one of the following theories states that the term structure of interest rates reveals the financial market's projections of future interest rates?

A $40,000 face value bond matures in 100 days and has a bank discount yield of 3.86 percent.What is the current value of the bond?

Which one of the following is the method used to quote interest rates on money market instruments?

Which one of the following is used by Treasury dealers to indicate the price they are willing to pay to purchase a Treasury bill?

Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?

You want to earn a real rate of return of 4.00 percent at a time when the inflation rate is 2.05 percent.What is the approximate nominal rate which you must earn?

The market segmentation theory states that interest rates on debt vary dependent upon market segments which are segmented based upon which one of the following?

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