Question 1

If the annual interest rate is 8%,what would you expect to pay for a discount bond paying $10,000 in ten years?

Accepted Answer

A)  $4,632 
B)  $9,259 
C)  $10,000 
D)  $21,589 
A)  $4,632 
B)  $9,259 
C)  $10,000 
D)  $21,589 A

Question 2

What are three reasons that banks charge interest on loans?

Accepted Answer

Banks charge interest on loans to compensate for inflation,to compensate for default risk,and to compensate for the opportunity cost of waiting to spend your money.

Question 3

Treasury STRIPS came into existence because

Accepted Answer

A)  investors demanded a tax-free long-term bond. 
B)  the Treasury wished to shift from long-term borrowing to short-term borrowing. 
C)  high inflation rates led to an increased demand for high-yield bonds. 
D)  investors demanded long-term discount bonds. 
A)  investors demanded a tax-free long-term bond. 
B)  the Treasury wished to shift from long-term borrowing to short-term borrowing. 
C)  high inflation rates led to an increased demand for high-yield bonds. 
D)  investors demanded long-term discount bonds. D

Question 4

How are TIPS adjusted for inflation?

Accepted Answer

A)  the interest rate is adjusted for inflation during each period 
B)  the principal is adjusted once the bond reaches maturity 
C)  the principal is adjusted for inflation each period 
D)  the interest rate is adjusted once the bond reaches maturity 
A)  the interest rate is adjusted for inflation during each period 
B)  the principal is adjusted once the bond reaches maturity 
C)  the principal is adjusted for inflation each period 
D)  the interest rate is adjusted once the bond reaches maturity

Question 5

Which of the following is a coupon bond?

Accepted Answer

A)  a U.S. savings bond 
B)  a U.S. Treasury bill 
C)  a U.S. Treasury note 
D)  a zero-coupon bond 
A)  a U.S. savings bond 
B)  a U.S. Treasury bill 
C)  a U.S. Treasury note 
D)  a zero-coupon bond

Question 6

If an investor is certain that market interest rates will decline in the future,which of the following will she be most likely to purchase?

Accepted Answer

A)  a six-month government bill 
B)  a two-year government note 
C)  a ten-year government bond 
D)  a fifty-year government bond 
A)  a six-month government bill 
B)  a two-year government note 
C)  a ten-year government bond 
D)  a fifty-year government bond

Question 7

Suppose you purchase a bond with a coupon of $30 for $1025.You sell it one year later for $1050.What rate of return did you earn? Report a percentage with two decimal places.

Accepted Answer

The rate of return i

Question 8

Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in that

Accepted Answer

A)  interest on simple loans and discount bonds is taxable, while interest on coupon bonds and fixed-payment loans is not. 
B)  interest on coupon bonds and fixed-payment loans is taxable, while interest on simple loans and discount bonds is not. 
C)  interest rates on simple loans and discount bonds are generally higher than interest rates on comparable coupon bonds and fixed-payment loans. 
D)  interest on simple loans and discount bonds is paid in a single payment, while issuers of coupon bonds and fixed-payment loans make multiple payments of interest and principal. 
A)  interest on simple loans and discount bonds is taxable, while interest on coupon bonds and fixed-payment loans is not. 
B)  interest on coupon bonds and fixed-payment loans is taxable, while interest on simple loans and discount bonds is not. 
C)  interest rates on simple loans and discount bonds are generally higher than interest rates on comparable coupon bonds and fixed-payment loans. 
D)  interest on simple loans and discount bonds is paid in a single payment, while issuers of coupon bonds and fixed-payment loans make multiple payments of interest and principal.

Question 9

The total rate of return is equal to

Accepted Answer

A)  the coupon rate plus the rate of capital gains. 
B)  the coupon rate plus the current yield. 
C)  the current yield plus the rate of capital gains. 
D)  the coupon rate multiplied by the rate of capital gains. 
A)  the coupon rate plus the rate of capital gains. 
B)  the coupon rate plus the current yield. 
C)  the current yield plus the rate of capital gains. 
D)  the coupon rate multiplied by the rate of capital gains.

Question 10

The bid price for a bond is

Accepted Answer

A)  the minimum price that you are allowed to bid for a bond that is being auctioned by the government. 
B)  the maximum price that you are allowed to bid for a bond that is being auctioned by the government. 
C)  the price that you will receive from a securities dealer if you sell the bond. 
D)  the price that you must pay a securities dealer to purchase a bond. 
A)  the minimum price that you are allowed to bid for a bond that is being auctioned by the government. 
B)  the maximum price that you are allowed to bid for a bond that is being auctioned by the government. 
C)  the price that you will receive from a securities dealer if you sell the bond. 
D)  the price that you must pay a securities dealer to purchase a bond.

Question 11

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant.At the end of one year Harry's Restaurant will pay First National

Accepted Answer

A)  $934.58. 
B)  $1007. 
C)  $1700. 
D)  $1070. 
A)  $934.58. 
B)  $1007. 
C)  $1700. 
D)  $1070.

Question 12

A corporation issues a three-year bond with a coupon of $50 and a face value of $1000.A year later,market interest rates have declined to 4%.What is the price of the bond a year after it was issued? Report your answer to the nearest dollar.

Accepted Answer

Since the price of t

Question 13

Declining default risk in late 2009 and 2010 led to

Accepted Answer

A)  increase in the price of junk bonds. 
B)  increase in the yield of junk bonds. 
C)  increase in yield of Treasury bonds. 
D)  increase in the price of Treasury bonds. 
A)  increase in the price of junk bonds. 
B)  increase in the yield of junk bonds. 
C)  increase in yield of Treasury bonds. 
D)  increase in the price of Treasury bonds.

Question 14

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to:

Accepted Answer

A)  rising yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
B)  falling yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
C)  their inability to issue new mortgages. 
D)  more rapid pre-payment of mortgages. 
A)  rising yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
B)  falling yields in secondary markets which led to a decline in the price of mortgage-backed securities. 
C)  their inability to issue new mortgages. 
D)  more rapid pre-payment of mortgages.

Question 15

The concept of present value

Accepted Answer

A)  reveals that discount bonds have higher interest rates than coupon bonds. 
B)  reveals that fixed payment loans have higher interest rates than discount bonds. 
C)  is useful in comparing interest rates for different financial instruments. 
D)  limits the comparability of returns on different types of bonds. 
A)  reveals that discount bonds have higher interest rates than coupon bonds. 
B)  reveals that fixed payment loans have higher interest rates than discount bonds. 
C)  is useful in comparing interest rates for different financial instruments. 
D)  limits the comparability of returns on different types of bonds.

Question 16

A coupon bond involves

Accepted Answer

A)  interest payments from the borrower to the lender periodically during the life of the loan and payment by the borrower to the lender of the face value of the loan at maturity. 
B)  interest and principal payments from the borrower to the lender periodically during the life of the loan. 
C)  periodic payments by the borrower to the lender that include both principal and interest. 
D)  periodic payments by the borrower to the lender that include principal, but not interest. 
A)  interest payments from the borrower to the lender periodically during the life of the loan and payment by the borrower to the lender of the face value of the loan at maturity. 
B)  interest and principal payments from the borrower to the lender periodically during the life of the loan. 
C)  periodic payments by the borrower to the lender that include both principal and interest. 
D)  periodic payments by the borrower to the lender that include principal, but not interest.

Question 17

The expected real interest rate approximately equals

Accepted Answer

A)  the nominal interest rate minus the tax rate. 
B)  the nominal interest rate minus the expected rate of inflation. 
C)  the nominal interest rate plus the expected rate of inflation. 
D)  the yield to maturity on a coupon bond held to maturity. 
A)  the nominal interest rate minus the tax rate. 
B)  the nominal interest rate minus the expected rate of inflation. 
C)  the nominal interest rate plus the expected rate of inflation. 
D)  the yield to maturity on a coupon bond held to maturity.

Question 18

Debt instruments are also called

Accepted Answer

A)  equities. 
B)  credit market instruments. 
C)  prospectuses. 
D)  units of account. 
A)  equities. 
B)  credit market instruments. 
C)  prospectuses. 
D)  units of account.

Question 19

u.S.Treasury bonds

Accepted Answer

A)  carry no risk of default and are therefore not risky investments. 
B)  have constant yields to maturity and are therefore not risky investments. 
C)  have constant coupon rates and are therefore not risky investments. 
D)  are subject to fluctuations in their market prices and are therefore risky investments. 
A)  carry no risk of default and are therefore not risky investments. 
B)  have constant yields to maturity and are therefore not risky investments. 
C)  have constant coupon rates and are therefore not risky investments. 
D)  are subject to fluctuations in their market prices and are therefore risky investments.

Question 20

Nominal interest rates are higher than real interest rates as long as

Accepted Answer

A)  expected inflation is positive. 
B)  the government taxes interest income. 
C)  inflation is expected to decline in the future. 
D)  long-term interest rates are higher than short-term interest rates. 
A)  expected inflation is positive. 
B)  the government taxes interest income. 
C)  inflation is expected to decline in the future. 
D)  long-term interest rates are higher than short-term interest rates.

If the annual interest rate is 8%,what would you expect to pay for a discount bond paying $10,000 in ten years?

What are three reasons that banks charge interest on loans?

Treasury STRIPS came into existence because

How are TIPS adjusted for inflation?

Which of the following is a coupon bond?

If an investor is certain that market interest rates will decline in the future,which of the following will she be most likely to purchase?

Suppose you purchase a bond with a coupon of $30 for $1025.You sell it one year later for $1050.What rate of return did you earn? Report a percentage with two decimal places.

Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in that

The total rate of return is equal to

The bid price for a bond is

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant.At the end of one year Harry's Restaurant will pay First National

A corporation issues a three-year bond with a coupon of $50 and a face value of $1000.A year later,market interest rates have declined to 4%.What is the price of the bond a year after it was issued? Report your answer to the nearest dollar.

Declining default risk in late 2009 and 2010 led to

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to:

The concept of present value

A coupon bond involves

The expected real interest rate approximately equals

Debt instruments are also called

u.S.Treasury bonds

Nominal interest rates are higher than real interest rates as long as

Introducing Money and the Financial System

Money and the Payments System

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 3: Interest Rates and Rates of Return

If the annual interest rate is 8%,what would you expect to pay for a discount bond paying $10,000 in ten years?

What are three reasons that banks charge interest on loans?

Treasury STRIPS came into existence because

How are TIPS adjusted for inflation?

Which of the following is a coupon bond?

If an investor is certain that market interest rates will decline in the future,which of the following will she be most likely to purchase?

Suppose you purchase a bond with a coupon of $30 for $1025.You sell it one year later for $1050.What rate of return did you earn? Report a percentage with two decimal places.

Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in that

The total rate of return is equal to

The bid price for a bond is

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant.At the end of one year Harry's Restaurant will pay First National

A corporation issues a three-year bond with a coupon of $50 and a face value of $1000.A year later,market interest rates have declined to 4%.What is the price of the bond a year after it was issued? Report your answer to the nearest dollar.

Declining default risk in late 2009 and 2010 led to

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to:

The concept of present value

A coupon bond involves

The expected real interest rate approximately equals

Debt instruments are also called

u.S.Treasury bonds

Nominal interest rates are higher than real interest rates as long as

Introducing Money and the Financial System

Money and the Payments System

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters