Question 1

For a simple loan, the simple interest rate equals the

Accepted Answer

A) real interest rate. 
B) nominal interest rate. 
C) current yield. 
D) yield to maturity. 
A) real interest rate. 
B) nominal interest rate. 
C) current yield. 
D) yield to maturity. D

Question 2

In which of the following situations would you prefer to be making a loan?

Accepted Answer

A) The interest rate is 9 percent and the expected inflation rate is 7 percent. 
B) The interest rate is 4 percent and the expected inflation rate is 1 percent. 
C) The interest rate is 13 percent and the expected inflation rate is 15 percent. 
D) The interest rate is 25 percent and the expected inflation rate is 50 percent. 
A) The interest rate is 9 percent and the expected inflation rate is 7 percent. 
B) The interest rate is 4 percent and the expected inflation rate is 1 percent. 
C) The interest rate is 13 percent and the expected inflation rate is 15 percent. 
D) The interest rate is 25 percent and the expected inflation rate is 50 percent. B

Question 3

The interest rate that financial economists consider to be the most accurate measure is the

Accepted Answer

A) current yield. 
B) yield to maturity. 
C) yield on a discount basis. 
D) coupon rate. 
A) current yield. 
B) yield to maturity. 
C) yield on a discount basis. 
D) coupon rate. B

Question 4

The nominal interest rate minus the expected rate of inflation

Accepted Answer

A) defines the real interest rate. 
B) is a better measure of the incentives to borrow and lend than the nominal interest rate. 
C) is a more accurate indicator of the tightness of credit market conditions than the nominal interest rate. 
D) all of the above. 
E) only A and B of the above. 
A) defines the real interest rate. 
B) is a better measure of the incentives to borrow and lend than the nominal interest rate. 
C) is a more accurate indicator of the tightness of credit market conditions than the nominal interest rate. 
D) all of the above. 
E) only A and B of the above.

Question 5

Increasing duration implies that interest-rate risk has increased.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following $1,000 face value securities has the highest yield to maturity?

Accepted Answer

A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 12 percent coupon bond selling for $1,000 
D) A 12 percent coupon bond selling for $1,100 
A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 12 percent coupon bond selling for $1,000 
D) A 12 percent coupon bond selling for $1,100

Question 7

A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of

Accepted Answer

A) 8 percent. 
B) 10 percent. 
C) 12 percent. 
D) 14 percent. 
A) 8 percent. 
B) 10 percent. 
C) 12 percent. 
D) 14 percent.

Question 8

The yield to maturity for a one-year discount bond equals

Accepted Answer

A) the increase in price over the year, divided by the initial price. 
B) the increase in price over the year, divided by the face value. 
C) the increase in price over the year, divided by the interest rate. 
D) none of the above. 
A) the increase in price over the year, divided by the initial price. 
B) the increase in price over the year, divided by the face value. 
C) the increase in price over the year, divided by the interest rate. 
D) none of the above.

Question 9

An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of

Accepted Answer

A) 5 percent. 
B) 8 percent. 
C) 10 percent. 
D) 40 percent. 
A) 5 percent. 
B) 8 percent. 
C) 10 percent. 
D) 40 percent.

Question 10

A discount bond

Accepted Answer

A) is also called a coupon bond. 
B) is also called a zero-coupon bond. 
C) is also called a fixed-payment bond. 
D) is also called a corporate bond. 
A) is also called a coupon bond. 
B) is also called a zero-coupon bond. 
C) is also called a fixed-payment bond. 
D) is also called a corporate bond.

Question 11

With an interest rate of 6 percent, the present value of $100 received one year from now is approximately

Accepted Answer

A) $106. 
B) $100. 
C) $94. 
D) $92. 
A) $106. 
B) $100. 
C) $94. 
D) $92.

Question 12

When a bond's price falls, its yield to maturity ________ and its current yield ________.

Accepted Answer

A) falls; falls 
B) rises; rises 
C) falls; rises 
D) rises; falls 
A) falls; falls 
B) rises; rises 
C) falls; rises 
D) rises; falls

Question 13

With an interest rate of 8 percent, the present value of $100 received one year from now is approximately

Accepted Answer

A) $93. 
B) $96. 
C) $100. 
D) $108. 
A) $93. 
B) $96. 
C) $100. 
D) $108.

Question 14

The current yield on a coupon bond is the bond's ________ divided by its ________.

Accepted Answer

A) annual coupon payment; price 
B) annual coupon payment; face value 
C) annual return; price 
D) annual return; face value 
A) annual coupon payment; price 
B) annual coupon payment; face value 
C) annual return; price 
D) annual return; face value

Question 15

A long-term bond's price is less affected by interest rate movements than a short-term bond's price.

Accepted Answer

A) True 
 B)False

Question 16

The yield to maturity on a consol bond that pays $200 yearly and sells for $1000 is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent. 
A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent.

Question 17

Which of the following $1,000 face value securities has the highest yield to maturity?

Accepted Answer

A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 15 percent coupon bond selling for $1,000 
D) A 15 percent coupon bond selling for $900 
A) A 5 percent coupon bond selling for $1,000 
B) A 10 percent coupon bond selling for $1,000 
C) A 15 percent coupon bond selling for $1,000 
D) A 15 percent coupon bond selling for $900

Question 18

How does reinvestment risk differ from interest-rate risk?

Accepted Answer

The answer of How does reinvestment risk differ from interest-rate...

Question 19

The yield to maturity of a one-year, simple loan of $500 that requires an interest payment of $40 is

Accepted Answer

A) 5 percent. 
B) 8 percent. 
C) 12 percent. 
D) 12.5 percent. 
A) 5 percent. 
B) 8 percent. 
C) 12 percent. 
D) 12.5 percent.

Question 20

If a $10,000 face value discount bond maturing in one year is selling for $8,000, then its yield to maturity is

Accepted Answer

A) 10 percent. 
B) 20 percent. 
C) 25 percent. 
D) 40 percent. 
A) 10 percent. 
B) 20 percent. 
C) 25 percent. 
D) 40 percent.

Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation

For a simple loan, the simple interest rate equals the

In which of the following situations would you prefer to be making a loan?

The interest rate that financial economists consider to be the most accurate measure is the

The nominal interest rate minus the expected rate of inflation

Increasing duration implies that interest-rate risk has increased.

Which of the following $1,000 face value securities has the highest yield to maturity?

A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of

The yield to maturity for a one-year discount bond equals

An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of

A discount bond

With an interest rate of 6 percent, the present value of $100 received one year from now is approximately

When a bond's price falls, its yield to maturity ________ and its current yield ________.

With an interest rate of 8 percent, the present value of $100 received one year from now is approximately

The current yield on a coupon bond is the bond's ________ divided by its ________.

A long-term bond's price is less affected by interest rate movements than a short-term bond's price.

The yield to maturity on a consol bond that pays $200 yearly and sells for $1000 is

Which of the following $1,000 face value securities has the highest yield to maturity?

How does reinvestment risk differ from interest-rate risk?

The yield to maturity of a one-year, simple loan of $500 that requires an interest payment of $40 is

If a $10,000 face value discount bond maturing in one year is selling for $8,000, then its yield to maturity is

Why Study Financial Markets and Institutions

Overview of the Financial System

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

When a bond's price falls, its yield to maturity and its current yield .

The current yield on a coupon bond is the bond's divided by its .