Question 1

A bond's current market value is equal to the present value of the coupon payments plus the present value of the face amount.

Accepted Answer

A) True 
 B)False

Question 2

(I)A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. (II)A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 3

If an investor's holding period is longer than the term to maturity of a bond, he or she is exposed to

Accepted Answer

A) interest-rate risk. 
B) reinvestment risk. 
C) bond-market risk. 
D) yield-to-maturity risk. 
A) interest-rate risk. 
B) reinvestment risk. 
C) bond-market risk. 
D) yield-to-maturity risk.

Question 4

The yield to maturity of a one-year, simple loan of $400 that requires an interest payment of $50 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 5

Bonds whose term to maturity is shorter than the holding period are also subject to

Accepted Answer

A) default. 
B) reinvestment risk. 
C) both of the above. 
D) none of the above. 
A) default. 
B) reinvestment risk. 
C) both of the above. 
D) none of the above.

Question 6

Financial economists consider the ________ to be the most accurate measure of interest rates.

Accepted Answer

A) simple interest rate 
B) discount rate 
C) yield to maturity 
D) real interest rate 
A) simple interest rate 
B) discount rate 
C) yield to maturity 
D) real interest rate

Question 7

If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately

Accepted Answer

A) 9 percent. 
B) 10 percent. 
C) 11 percent. 
D) 12 percent. 
A) 9 percent. 
B) 10 percent. 
C) 11 percent. 
D) 12 percent.

Question 8

The interest rate that is adjusted for actual changes in the price level is called the

Accepted Answer

A) ex post real interest rate. 
B) expected interest rate. 
C) ex ante real interest rate. 
D) none of the above. 
A) ex post real interest rate. 
B) expected interest rate. 
C) ex ante real interest rate. 
D) none of the above.

Question 9

All else being equal, the greater the interest rate the greater the duration is.

Accepted Answer

A) True 
 B)False

Question 10

With an interest rate of 5 percent, the present value of $100 received one year from now is approximately

Accepted Answer

A) $100. 
B) $105. 
C) $95. 
D) $90. 
A) $100. 
B) $105. 
C) $95. 
D) $90.

Question 11

Which of the following are true for a coupon bond?

Accepted Answer

A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. 
B) The price of a coupon bond and the yield to maturity are negatively related. 
C) The yield to maturity is greater than the coupon rate when the bond price is below the par value. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. 
B) The price of a coupon bond and the yield to maturity are negatively related. 
C) The yield to maturity is greater than the coupon rate when the bond price is below the par value. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 12

Which of the following are true concerning the distinction between interest rates and return?

Accepted Answer

A) The rate of return on a bond will not necessarily equal the interest rate on that bond. 
B) The return can be expressed as the sum of the current yield and the rate of capital gains. 
C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The rate of return on a bond will not necessarily equal the interest rate on that bond. 
B) The return can be expressed as the sum of the current yield and the rate of capital gains. 
C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 13

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent

Question 14

If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is

Accepted Answer

A) $650. 
B) $1,300. 
C) $130. 
D) $13. 
E) None of the above. 
A) $650. 
B) $1,300. 
C) $130. 
D) $13. 
E) None of the above.

Question 15

If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 50 percent. 
D) 100 percent. 
A) 5 percent. 
B) 10 percent. 
C) 50 percent. 
D) 100 percent.

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

A bond's current market value is equal to the present value of the coupon payments plus the present value of the face amount.

(I)A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. (II)A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date.

If an investor's holding period is longer than the term to maturity of a bond, he or she is exposed to

The yield to maturity of a one-year, simple loan of $400 that requires an interest payment of $50 is

Bonds whose term to maturity is shorter than the holding period are also subject to

Financial economists consider the ________ to be the most accurate measure of interest rates.

If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately

The interest rate that is adjusted for actual changes in the price level is called the

All else being equal, the greater the interest rate the greater the duration is.

With an interest rate of 5 percent, the present value of $100 received one year from now is approximately

Which of the following are true for a coupon bond?

Which of the following are true concerning the distinction between interest rates and return?

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?

If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is

If a $10,000 face value discount bond maturing in one year is selling for $5,000, 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