Question 1

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 2

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 3

You want to earn a real rate of return of 3.64 percent at a time when the inflation rate is 2.84 percent.What is the approximate nominal rate which you must earn?

Accepted Answer

A) 6.48 percent 
B) 6.66 percent 
C) 6.68 percent 
D) 6.74 percent 
E) 6.81 percent 
A) 6.48 percent 
B) 6.66 percent 
C) 6.68 percent 
D) 6.74 percent 
E) 6.81 percent

Question 4

First 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 5

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 6

Which of the following statements are true?
I.Lenders have a preference for shorter maturities.
II.Lenders have a preference for longer maturities.
III.Borrowers have a preference for shorter maturities.
IV.Borrowers have a preference for longer maturities.

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

Which one of the following statements is correct concerning U.S.Treasury bill rates for the period 1800 - 2010?

Accepted Answer

A) T-bill rates never exceeded 10 percent. 
B) T-bill rates never exceeded T-bond rates. 
C) T-bill rates were lower than 1 percent for a period of time. 
D) T-bill rates were less volatile than T-bond rates. 
E) T-bill rates were the highest during the World War II years of the 1940's. 
A) T-bill rates never exceeded 10 percent. 
B) T-bill rates never exceeded T-bond rates. 
C) T-bill rates were lower than 1 percent for a period of time. 
D) T-bill rates were less volatile than T-bond rates. 
E) T-bill rates were the highest during the World War II years of the 1940's.

Question 8

Which one of the following statements concerning the modern fixed-income market is correct?

Accepted Answer

A) Pension funds generally have a preference for short maturities. 
B) Current maturity preference theory states that both borrowers and lenders prefer short maturities. 
C) Market segmentation theory does little to explain the modern fixed-income market. 
D) The major borrower in the modern market borrows primarily on a long-term basis. 
E) Institutional investors tend to invest in only one maturity range. 
A) Pension funds generally have a preference for short maturities. 
B) Current maturity preference theory states that both borrowers and lenders prefer short maturities. 
C) Market segmentation theory does little to explain the modern fixed-income market. 
D) The major borrower in the modern market borrows primarily on a long-term basis. 
E) Institutional investors tend to invest in only one maturity range.

Question 9

A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 percent.What is the effective annual rate?

Accepted Answer

A) 2.79 percent 
B) 2.82 percent 
C) 2.85 percent 
D) 2.88 percent 
E) 2.91 percent 
A) 2.79 percent 
B) 2.82 percent 
C) 2.85 percent 
D) 2.88 percent 
E) 2.91 percent

Question 10

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 35 days.What is the price of this bill?

Accepted Answer

A) $74,687.14 
B) $74,777.60 
C) $74,819.80 
D) $74,868.00 
E) $74,878.42 
A) $74,687.14 
B) $74,777.60 
C) $74,819.80 
D) $74,868.00 
E) $74,878.42

Question 11

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 12

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

Question 13

An investment will make one payment of $22,500 nine years from now.What is the current value of this investment if the nominal rate of return is 4.8 percent?

Accepted Answer

A) $11,980.86 
B) $12,124.29 
C) $12,390.08 
D) $13,515.46 
E) $14,754.72 
A) $11,980.86 
B) $12,124.29 
C) $12,390.08 
D) $13,515.46 
E) $14,754.72

Question 14

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 15

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 16

Which one of the following debt instruments guarantees investors a positive real rate of return?

Accepted Answer

A) zero-coupon bond 
B) default-free, pure-discount bond 
C) T-bill 
D) TIPS 
E) T-bond 
A) zero-coupon bond 
B) default-free, pure-discount bond 
C) T-bill 
D) TIPS 
E) T-bond

Question 17

Identify and describe four of the six components of nominal interest rates as supported by modern term structure theory.

Accepted Answer

The four components of nominal interest

Question 18

A Treasury bill has 40 days left to maturity.The bank discount yield on the bill is 3.75 percent.What is the effective annual rate?

Accepted Answer

A) 3.55 percent 
B) 3.66 percent 
C) 3.77 percent 
D) 3.88 percent 
E) 3.99 percent 
A) 3.55 percent 
B) 3.66 percent 
C) 3.77 percent 
D) 3.88 percent 
E) 3.99 percent

Question 19

A $5,000 face value bond is quoted at a bank discount yield of 2.8 percent.What is the current value of the bond if it matures in 36 days?

Accepted Answer

A) $4,972 
B) $4,978 
C) $4,982 
D) $4,986 
E) $4,991 
A) $4,972 
B) $4,978 
C) $4,982 
D) $4,986 
E) $4,991

Question 20

A Treasury bill has a face value of $250,000,an asked yield of 2.02 percent,and matures in 32 days.What is the price of this bill?

Accepted Answer

A) $249,397.19 
B) $249,408.08 
C) $249,511.11 
D) $249,670.22 
E) $249,717.08 
A) $249,397.19 
B) $249,408.08 
C) $249,511.11 
D) $249,670.22 
E) $249,717.08

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 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.

You want to earn a real rate of return of 3.64 percent at a time when the inflation rate is 2.84 percent.What is the approximate nominal rate which you must earn?

First 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?

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

Which of the following statements are true? I.Lenders have a preference for shorter maturities. II.Lenders have a preference for longer maturities. III.Borrowers have a preference for shorter maturities. IV.Borrowers have a preference for longer maturities.

Which one of the following statements is correct concerning U.S.Treasury bill rates for the period 1800 - 2010?

Which one of the following statements concerning the modern fixed-income market is correct?

A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 percent.What is the effective annual rate?

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 35 days.What is the price of this bill?

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

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

An investment will make one payment of $22,500 nine years from now.What is the current value of this investment if the nominal rate of return is 4.8 percent?

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

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

Which one of the following debt instruments guarantees investors a positive real rate of return?

Identify and describe four of the six components of nominal interest rates as supported by modern term structure theory.

A Treasury bill has 40 days left to maturity.The bank discount yield on the bill is 3.75 percent.What is the effective annual rate?

A $5,000 face value bond is quoted at a bank discount yield of 2.8 percent.What is the current value of the bond if it matures in 36 days?

A Treasury bill has a face value of $250,000,an asked yield of 2.02 percent,and matures in 32 days.What is the price of this bill?

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

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 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.

You want to earn a real rate of return of 3.64 percent at a time when the inflation rate is 2.84 percent.What is the approximate nominal rate which you must earn?

First 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?

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

Which of the following statements are true? I.Lenders have a preference for shorter maturities. II.Lenders have a preference for longer maturities. III.Borrowers have a preference for shorter maturities. IV.Borrowers have a preference for longer maturities.

Which one of the following statements is correct concerning U.S.Treasury bill rates for the period 1800 - 2010?

Which one of the following statements concerning the modern fixed-income market is correct?

A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 percent.What is the effective annual rate?

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 35 days.What is the price of this bill?

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

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

An investment will make one payment of $22,500 nine years from now.What is the current value of this investment if the nominal rate of return is 4.8 percent?

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

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

Which one of the following debt instruments guarantees investors a positive real rate of return?

Identify and describe four of the six components of nominal interest rates as supported by modern term structure theory.

A Treasury bill has 40 days left to maturity.The bank discount yield on the bill is 3.75 percent.What is the effective annual rate?

A $5,000 face value bond is quoted at a bank discount yield of 2.8 percent.What is the current value of the bond if it matures in 36 days?

A Treasury bill has a face value of $250,000,an asked yield of 2.02 percent,and matures in 32 days.What is the price of this bill?

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