Question 1

An speculator who buys a fifty-year corporate bond

Accepted Answer

A)  must be expecting to still be alive in fifty years. 
B)  is subject to substantial reinvestment risk. 
C)  is probably expecting market interest rates to increase in the future. 
D)  is probably expecting market interest rates to decrease in the future. 
A)  must be expecting to still be alive in fifty years. 
B)  is subject to substantial reinvestment risk. 
C)  is probably expecting market interest rates to increase in the future. 
D)  is probably expecting market interest rates to decrease in the future.

Question 2

Treasury STRIPS are

Accepted Answer

A)  tax-exempt bonds. 
B)  simple loans. 
C)  discount bonds. 
D)  fixed payment loans. 
A)  tax-exempt bonds. 
B)  simple loans. 
C)  discount bonds. 
D)  fixed payment loans.

Question 3

Which of the following is NOT true of a fixed payment loan?

Accepted Answer

A)  The borrower is required to make regular periodic payments to the lender. 
B)  The payments made by the borrower include both interest and principal. 
C)  The borrower is left with a substantial unpaid principal at the maturity of the loan. 
D)  A home mortgage is an example of fixed payment loan. 
A)  The borrower is required to make regular periodic payments to the lender. 
B)  The payments made by the borrower include both interest and principal. 
C)  The borrower is left with a substantial unpaid principal at the maturity of the loan. 
D)  A home mortgage is an example of fixed payment loan.

Question 4

If the current price of a bond is greater than its face value

Accepted Answer

A)  an investor will receive a capital gain by holding the bond until maturity. 
B)  the yield to maturity must be less than the coupon rate. 
C)  the coupon rate must be less than the current yield. 
D)  the coupon rate must be equal to the current yield. 
A)  an investor will receive a capital gain by holding the bond until maturity. 
B)  the yield to maturity must be less than the coupon rate. 
C)  the coupon rate must be less than the current yield. 
D)  the coupon rate must be equal to the current yield.

Question 5

A coupon bond has an annual coupon of $75,a par value of $1000,and a market price of $900.Its current yield equals

Accepted Answer

A)  7.50%. 
B)  8.33%. 
C)  its yield to maturity. 
D)  Not enough information has been provided to calculate the current yield for this bond. 
A)  7.50%. 
B)  8.33%. 
C)  its yield to maturity. 
D)  Not enough information has been provided to calculate the current yield for this bond.

Question 6

A one-year discount bond with a par value of $5000 sold today,at issuance,for $4750 has a yield to maturity of

Accepted Answer

A)  5.00%. 
B)  5.26%. 
C)  2.50%. 
D)  9.75%. 
A)  5.00%. 
B)  5.26%. 
C)  2.50%. 
D)  9.75%.

Question 7

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Accepted Answer

A)  6% 
B)  6.38% 
C)  5.3% 
D)  Not enough information has been provided to determine the answer. 
A)  6% 
B)  6.38% 
C)  5.3% 
D)  Not enough information has been provided to determine the answer.

Question 8

If,while you are holding a coupon bond,the interest rates on other similar bonds fall,you can be sure that

Accepted Answer

A)  the coupon payments on your bond will fall. 
B)  the market price of your bond will rise. 
C)  the market price of your bond will fall. 
D)  the par value of your bond will rise. 
A)  the coupon payments on your bond will fall. 
B)  the market price of your bond will rise. 
C)  the market price of your bond will fall. 
D)  the par value of your bond will rise.

Question 9

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

Accepted Answer

A)  Treasury bond 
B)  TIPS 
C)  corporate bond 
D)  municipal bond 
A)  Treasury bond 
B)  TIPS 
C)  corporate bond 
D)  municipal bond

Question 10

The coupon rate is the

Accepted Answer

A)  annual coupon payment divided by the face value of the bond. 
B)  annual coupon payment divided by the market value of the bond. 
C)  difference between the face value of the bond and its par value. 
D)  coupon paid every 6 months divided by par value. 
A)  annual coupon payment divided by the face value of the bond. 
B)  annual coupon payment divided by the market value of the bond. 
C)  difference between the face value of the bond and its par value. 
D)  coupon paid every 6 months divided by par value.

Question 11

The most common type of simple loan is a(an)

Accepted Answer

A)  automobile loan from a bank. 
B)  mortgage loan from a bank. 
C)  commercial loan from a bank. 
D)  corporate bond. 
A)  automobile loan from a bank. 
B)  mortgage loan from a bank. 
C)  commercial loan from a bank. 
D)  corporate bond.

Question 12

Which of the following statements about the total rate of return is NOT correct?

Accepted Answer

A)  The total rate of return may be greater or less than the current yield. 
B)  The total rate of return may be greater or less than the rate of capital gain. 
C)  The total rate of return may never be negative. 
D)  The total rate of return is greater than the coupon, holding everything else constant. 
A)  The total rate of return may be greater or less than the current yield. 
B)  The total rate of return may be greater or less than the rate of capital gain. 
C)  The total rate of return may never be negative. 
D)  The total rate of return is greater than the coupon, holding everything else constant.

Question 13

A one-year discount bond has a face value of $1000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Accepted Answer

The yield to maturit

Question 14

At an interest rate of 3%,what is the present value of $1000 to be received five years from now?

Accepted Answer

A)  $863 
B)  $1,667 
C)  $1,159 
D)  $850 
A)  $863 
B)  $1,667 
C)  $1,159 
D)  $850

Question 15

With respect to U.S.Treasury bills,

Accepted Answer

A)  the bid price is always greater than the asked price. 
B)  the asked price is always greater than the bid price. 
C)  the bid price is only greater than the asked price if investors expect interest rates to decline in the future. 
D)  the asked price is only greater than the bid price if investors expect interest rates to decline in the future. 
A)  the bid price is always greater than the asked price. 
B)  the asked price is always greater than the bid price. 
C)  the bid price is only greater than the asked price if investors expect interest rates to decline in the future. 
D)  the asked price is only greater than the bid price if investors expect interest rates to decline in the future.

Question 16

The key to present value calculations is that they

Accepted Answer

A)  are appropriate only for funds in the same time period. 
B)  provide a common unit for measuring funds at different times. 
C)  provide accurate answers only in a low-inflation environment. 
D)  provide accurate answers only in a high-inflation environment. 
A)  are appropriate only for funds in the same time period. 
B)  provide a common unit for measuring funds at different times. 
C)  provide accurate answers only in a low-inflation environment. 
D)  provide accurate answers only in a high-inflation environment.

An speculator who buys a fifty-year corporate bond

Treasury STRIPS are

Which of the following is NOT true of a fixed payment loan?

If the current price of a bond is greater than its face value

A coupon bond has an annual coupon of $75,a par value of $1000,and a market price of $900.Its current yield equals

A one-year discount bond with a par value of $5000 sold today,at issuance,for $4750 has a yield to maturity of

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

If,while you are holding a coupon bond,the interest rates on other similar bonds fall,you can be sure that

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

The coupon rate is the

The most common type of simple loan is a(an)

Which of the following statements about the total rate of return is NOT correct?

A one-year discount bond has a face value of $1000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

At an interest rate of 3%,what is the present value of $1000 to be received five years from now?

With respect to U.S.Treasury bills,

The key to present value calculations is that they

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

An speculator who buys a fifty-year corporate bond

Treasury STRIPS are

Which of the following is NOT true of a fixed payment loan?

If the current price of a bond is greater than its face value

A coupon bond has an annual coupon of $75,a par value of $1000,and a market price of $900.Its current yield equals

A one-year discount bond with a par value of $5000 sold today,at issuance,for $4750 has a yield to maturity of

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

If,while you are holding a coupon bond,the interest rates on other similar bonds fall,you can be sure that

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

The coupon rate is the

The most common type of simple loan is a(an)

Which of the following statements about the total rate of return is NOT correct?

A one-year discount bond has a face value of $1000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

At an interest rate of 3%,what is the present value of $1000 to be received five years from now?

With respect to U.S.Treasury bills,

The key to present value calculations is that they

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