Question 1

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

Question 2

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Accepted Answer

A)  Fisher equation
B)  Keynesian equation
C)  Monetarist equation
D)  Marshall equation

Question 3

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.

Question 4

An asset's interest rate risk ________ as the duration of the asset ________.

Accepted Answer

A)  increases;decreases
B)  decreases;decreases
C)  decreases;increases
D)  remains constant;increases

Question 5

The present value of an expected future payment ________ as the interest rate increases.

Accepted Answer

A)  falls
B)  rises
C)  is constant
D)  is unaffected

Question 6

A fully amortized loan is another name for

Accepted Answer

A)  a simple loan.
B)  a fixed-payment loan.
C)  a commercial loan.
D)  an unsecured loan.

Question 7

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

Accepted Answer

A)  a 5 percent coupon bond with a price of $600
B)  a 5 percent coupon bond with a price of $800
C)  a 5 percent coupon bond with a price of $1,000
D)  a 5 percent coupon bond with a price of $1,200

Question 8

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

Accepted Answer

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

Question 9

Which of the following are TRUE concerning the distinction between interest rates and returns?

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 difference between 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 during the holding period.
D)  The return can be expressed as the sum of the discount yield and the rate of capital gains.

Question 10

Interest-rate risk is the riskiness of an asset's returns due to

Accepted Answer

A)  interest-rate changes.
B)  changes in the coupon rate.
C)  default of the borrower.
D)  changes in the asset's maturity.

Question 11

The interest rate on a consol equals the

Accepted Answer

A)  price times the coupon payment.
B)  price divided by the coupon payment.
C)  coupon payment plus the price.
D)  coupon payment divided by the price.

Question 12

If the amount payable in two years is $2,420 for a simple loan at 10 percent interest,the loan amount is

Accepted Answer

A)  $1,000.
B)  $1,210.
C)  $2,000.
D)  $2,200.

Question 13

All of the following are examples of coupon bonds EXCEPT

Accepted Answer

A)  corporate bonds.
B)  U) S. Treasury bills.
C)  U) S. Treasury notes.
D)  U) S. Treasury bonds.

Question 14

The ________ of a coupon bond and the yield to maturity are inversely related.

Accepted Answer

A)  price
B)  par value
C)  maturity date
D)  term

Question 15

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

Accepted Answer

A)  yield to maturity
B)  current yield
C)  rate of return
D)  yield rate

Question 16

Duration is

Accepted Answer

A)  an asset's term to maturity.
B)  the time until the next interest payment for a coupon bond.
C)  the average lifetime of a debt security's stream of payments.
D)  the time between interest payments for a coupon bond.

Question 17

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.

Question 18

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

Question 19

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

Accepted Answer

A)  simple loan.
B)  fixed-payment loan.
C)  coupon bond.
D)  discount bond.

Question 20

If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

Accepted Answer

A)  -5 percent.
B)  -2 percent.
C)  2 percent.
D)  12 percent.

Exam 4: The Meaning of Interest Rates

The interest rate on a consol equals the

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If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

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

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

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

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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?

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Duration is

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The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

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

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All of the following are examples of coupon bonds EXCEPT

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The present value of an expected future payment ________ as the interest rate increases.

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

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A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

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If the amount payable in two years is $2,420 for a simple loan at 10 percent interest,the loan amount is

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The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

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Interest-rate risk is the riskiness of an asset's returns due to

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An asset's interest rate risk ________ as the duration of the asset ________.

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A fully amortized loan is another name for

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Which of the following are TRUE concerning the distinction between interest rates and returns?

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The ________ of a coupon bond and the yield to maturity are inversely related.

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An asset's interest rate risk as the duration of the asset .

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