Question 1

A decrease in the nation's wealth, all other factors constant:

Accepted Answer

A) Would cause the bond demand curve to shift left 
B) Would cause bond prices to rise 
C) Would cause interest rates to decrease 
D) Would cause the bond supply curve to shift left 
A) Would cause the bond demand curve to shift left 
B) Would cause bond prices to rise 
C) Would cause interest rates to decrease 
D) Would cause the bond supply curve to shift left

Question 2

A $1000 face value bond, with one year to maturity that sells for $950 and has a $40 annual coupon has:

Accepted Answer

A) A current yield and yield to maturity of 4.00% 
B) A yield to maturity that equals the current yield 
C) A coupon rate of 4.00% and a current yield that is below this 
D) A current yield of 4.21% 
A) A current yield and yield to maturity of 4.00% 
B) A yield to maturity that equals the current yield 
C) A coupon rate of 4.00% and a current yield that is below this 
D) A current yield of 4.21%

Question 3

Default risk is the risk associated with:

Accepted Answer

A) The bond issuer not being able to make the promised payments 
B) The illiquidity associated with small issues 
C) The effect on bond prices caused by changes in market rates of interest 
D) Changes in the expected inflation rate 
A) The bond issuer not being able to make the promised payments 
B) The illiquidity associated with small issues 
C) The effect on bond prices caused by changes in market rates of interest 
D) Changes in the expected inflation rate

Question 4

Use our model of the bond market (supply and demand) to explain what happens if the U.S.economy continues to grow at robust rates.

Accepted Answer

Growth in the economy should result in g

Question 5

When the price of a bond is above face value:

Accepted Answer

A) The yield to maturity is below the coupon rate 
B) The yield to maturity will be above the coupon rate 
C) The yield to maturity will equal the current yield 
D) The yield to maturity will equal the coupon rate 
A) The yield to maturity is below the coupon rate 
B) The yield to maturity will be above the coupon rate 
C) The yield to maturity will equal the current yield 
D) The yield to maturity will equal the coupon rate

Question 6

Which of the following would lead to an increase in bond supply?

Accepted Answer

A) A decrease in government spending relative to revenue 
B) An increase in corporate taxes 
C) A decrease in expected inflation 
D) An improvement in general business conditions 
A) A decrease in government spending relative to revenue 
B) An increase in corporate taxes 
C) A decrease in expected inflation 
D) An improvement in general business conditions

Question 7

Suppose that the expected return on bonds falls relative to other assets.In the bond market this will result in:

Accepted Answer

A) The bond supply curve shifting left 
B) A movement down the bond demand curve 
C) A shift to the left of the bond demand curve 
D) An increase in the price of bonds 
A) The bond supply curve shifting left 
B) A movement down the bond demand curve 
C) A shift to the left of the bond demand curve 
D) An increase in the price of bonds

Question 8

Which of the following is not a reason why the yield to maturity can differ from the current yield?

Accepted Answer

A) Because the yield to maturity considers the capital gain/loss 
B) Because the current yield focuses only on the coupon payment and the purchase price 
C) Because most bonds are not purchased for face value 
D) Because the current yield moves in the opposite direction from price 
A) Because the yield to maturity considers the capital gain/loss 
B) Because the current yield focuses only on the coupon payment and the purchase price 
C) Because most bonds are not purchased for face value 
D) Because the current yield moves in the opposite direction from price

Question 9

The most common form of zero-coupon bonds found in the United States is:

Accepted Answer

A) AAA rated corporate bonds 
B) U.S.Treasury bills 
C) 30-year U.S.Treasury bonds 
D) Municipal bonds 
A) AAA rated corporate bonds 
B) U.S.Treasury bills 
C) 30-year U.S.Treasury bonds 
D) Municipal bonds

Question 10

The U.S.Treasury offers several ways to purchase U.S.government bonds.There are the traditional coupon bonds, plus Treasury Inflation-Indexed Securities and STRIPS.How do these bonds differ from their traditional counterparts?

Accepted Answer

Inflation-indexed securities protect the

Question 11

Which of the following would lead to a decrease in bond demand?

Accepted Answer

A) An increase in expected inflation 
B) An increase in wealth 
C) A decrease in risk 
D) A decrease in liquidity 
A) An increase in expected inflation 
B) An increase in wealth 
C) A decrease in risk 
D) A decrease in liquidity

Question 12

The difference in the prices of a zero-coupon bond and a coupon bond with the same face value and maturity date is simply:

Accepted Answer

A) Zero, since they are the same 
B) The present value of the final payment 
C) The present value of the coupon payments 
D) The future value of the coupon payments 
A) Zero, since they are the same 
B) The present value of the final payment 
C) The present value of the coupon payments 
D) The future value of the coupon payments

Question 13

When a loan is amortized, it means:

Accepted Answer

A) The borrower is in default 
B) The principal and interest are paid off by the borrower over the life of the loan 
C) The interest is due entirely at the maturity date 
D) The principal is never repaid, only interest 
A) The borrower is in default 
B) The principal and interest are paid off by the borrower over the life of the loan 
C) The interest is due entirely at the maturity date 
D) The principal is never repaid, only interest

Question 14

Explain why the spreads on most municipal bonds would be greater than the spread on U.S.Treasury bonds.

Accepted Answer

Spreads are the difference between the d

Question 15

If a bond's purchase price equals the face value:

Accepted Answer

A) The coupon rate equals the current yield, which is less than the yield to maturity 
B) The current yield equals the yield to maturity, which exceeds the coupon rate 
C) The coupon rate equals the yield to maturity, which equals the current yield 
D) The coupon rate does not equal the current yield, which does not equal the yield to maturity 
A) The coupon rate equals the current yield, which is less than the yield to maturity 
B) The current yield equals the yield to maturity, which exceeds the coupon rate 
C) The coupon rate equals the yield to maturity, which equals the current yield 
D) The coupon rate does not equal the current yield, which does not equal the yield to maturity

Question 16

A $1,000 face value bond, with an annual coupon of $40, one year to maturity and a purchase price of $980 has:

Accepted Answer

A) A current yield that equals 4.00% 
B) A coupon rate that equals 4.08% 
C) A current yield that equals 4.08% and a yield to maturity that equals 6.12% 
D) A current yield that equals 4.08% and a yield to maturity that equals 4.0% 
A) A current yield that equals 4.00% 
B) A coupon rate that equals 4.08% 
C) A current yield that equals 4.08% and a yield to maturity that equals 6.12% 
D) A current yield that equals 4.08% and a yield to maturity that equals 4.0%

Question 17

Consider a $1,000.00 face value bond with a $55 annual coupon and 10 years until maturity.Calculate the current yield; the coupon rate and the yield to maturity under each of the following:
a) The bond is purchased for $940.00
b) The bond is purchased for $1,130.00
c) The bond is purchased for $1,000.00

Accepted Answer

We can use a financial calculator to sol

Question 18

If the U.S.government's borrowing needs increase, in the bond market this would be seen as:

Accepted Answer

A) The bond demand curve shifting right 
B) The bond supply curve shifting right 
C) The bond demand curve shifting left 
D) The bond supply curve shifting left 
A) The bond demand curve shifting right 
B) The bond supply curve shifting right 
C) The bond demand curve shifting left 
D) The bond supply curve shifting left

Question 19

If interest rates are expected to rise, the bond prices will:

Accepted Answer

A) Not change until interest rates actually change 
B) Fall, due to the demand for bonds decreasing 
C) Rise, as people seek capital gains 
D) Move in the same direction as the expected change in interest rates 
A) Not change until interest rates actually change 
B) Fall, due to the demand for bonds decreasing 
C) Rise, as people seek capital gains 
D) Move in the same direction as the expected change in interest rates

Question 20

If the purchase price of a bond exceeds the face value, the yield to maturity:

Accepted Answer

A) Is greater than the coupon rate because the capital gain is positive 
B) Will equal the current yield 
C) Will be less than the coupon rate because the capital gain will be negative 
D) Will be greater than the current yield 
A) Is greater than the coupon rate because the capital gain is positive 
B) Will equal the current yield 
C) Will be less than the coupon rate because the capital gain will be negative 
D) Will be greater than the current yield

Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

A decrease in the nation's wealth, all other factors constant:

A $1000 face value bond, with one year to maturity that sells for $950 and has a $40 annual coupon has:

Default risk is the risk associated with:

Use our model of the bond market (supply and demand) to explain what happens if the U.S.economy continues to grow at robust rates.

When the price of a bond is above face value:

Which of the following would lead to an increase in bond supply?

Suppose that the expected return on bonds falls relative to other assets.In the bond market this will result in:

Which of the following is not a reason why the yield to maturity can differ from the current yield?

The most common form of zero-coupon bonds found in the United States is:

The U.S.Treasury offers several ways to purchase U.S.government bonds.There are the traditional coupon bonds, plus Treasury Inflation-Indexed Securities and STRIPS.How do these bonds differ from their traditional counterparts?

Which of the following would lead to a decrease in bond demand?

The difference in the prices of a zero-coupon bond and a coupon bond with the same face value and maturity date is simply:

When a loan is amortized, it means:

Explain why the spreads on most municipal bonds would be greater than the spread on U.S.Treasury bonds.

If a bond's purchase price equals the face value:

A $1,000 face value bond, with an annual coupon of $40, one year to maturity and a purchase price of $980 has:

If the U.S.government's borrowing needs increase, in the bond market this would be seen as:

If interest rates are expected to rise, the bond prices will:

If the purchase price of a bond exceeds the face value, the yield to maturity:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: the Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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