Question 1

What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

Accepted Answer

A)  $453.51
B)  $550.00
C)  $476.25
D)  $555.00E) None of the above
F) A) and D)

Question 2

For a 3-year simple loan of $10,000 at 10 percent,the amount to be repaid is

Accepted Answer

A)  $10,030.
B)  $10,300.
C)  $13,000.
D)  $13,310.E) B) and C)
F) A) and B)

Question 3

The yield to maturity for a discount bond is ________ related to the current bond price.

Accepted Answer

A)  negatively
B)  positively
C)  not
D)  directlyE) A) and C)
F) C) and D)

Question 4

When talking about a coupon bond,face value and ________ mean the same thing.

Accepted Answer

A)  par value
B)  coupon value
C)  amortized value
D)  discount valueE) B) and D)
F) B) and C)

Question 5

Which of the following are true for discount bonds?

Accepted Answer

A)  A discount bond is bought at par.
B)  The purchaser receives the face value of the bond at the maturity date.
C)  U.S.Treasury bonds and notes are examples of discount bonds.
D)  The purchaser receives the par value at maturity plus any capital gains.E) A) and B)
F) A) and C)

Question 6

All else equal,the ________ the coupon rate on a bond,the ________ the bond's duration.

Accepted Answer

A)  higher; longer
B)  higher; shorter
C)  lower; shorter
D)  greater; longerE) All of the above
F) A) and D)

Question 7

An equal decrease in all bond interest rates

Accepted Answer

A)  increases the price of a five-year bond more than the price of a ten-year bond.
B)  increases the price of a ten-year bond more than the price of a five-year bond.
C)  decreases the price of a five-year bond more than the price of a ten-year bond.
D)  decreases the price of a ten-year bond more than the price of a five-year bond.E) A) and C)
F) A) and D)

Question 8

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

Accepted Answer

A)  .6 percent.
B)  5 percent.
C)  6 percent.
D)  10 percent.E) C) and D)
F) A) and C)

Question 9

When the ________ interest rate is low,there are greater incentives to ________ and fewer incentives to ________.

Accepted Answer

A)  nominal; lend; borrow
B)  real; lend; borrow
C)  real; borrow; lend
D)  market; lend; borrowE) A) and B)
F) None of the above

Question 10

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

Accepted Answer

A)  falls
B)  rises
C)  is constant
D)  is unaffectedE) None of the above
F) B) and C)

Question 11

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of

Accepted Answer

A)  3 percent.
B)  20 percent.
C)  25 percent.
D)  33.3 percent.E) B) and D)
F) A) and B)

Question 12

The interest rate that describes how well a lender has done in real terms after the fact is called the

Accepted Answer

A)  ex post real interest rate.
B)  ex ante real interest rate.
C)  ex post nominal interest rate.
D)  ex ante nominal interest rate.E) None of the above
F) C) and D)

Question 13

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

Accepted Answer

A)  greater; coupon; above
B)  greater; coupon; below
C)  greater; perpetuity; above
D)  less; perpetuity; belowE) A) and B)
F) A) and D)

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)  termE) B) and D)
F) B) and C)

Question 15

The price of a coupon bond and the yield to maturity are ________ related; that is,as the yield to maturity ________,the price of the bond ________.

Accepted Answer

A)  positively; rises; rises
B)  negatively; falls; falls
C)  positively; rises; falls
D)  negatively; rises; fallsE) A) and C)
F) All of the above

Question 16

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.E) C) and D)
F) B) and C)

Question 17

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 rateE) A) and B)
F) A) and C)

Question 18

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

Accepted Answer

A)  simple interest rate.
B)  current yield.
C)  yield to maturity.
D)  real interest rate.E) All of the above
F) B) and C)

Question 19

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.E) A) and B)
F) None of the above

Question 20

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.E) B) and C)
F) C) and D)

Exam 4: Understanding Interest Rates

Which of the following are true for discount bonds?

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What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

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

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The yield to maturity for a discount bond is ________ related to the current bond price.

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All else equal,the ________ the coupon rate on a bond,the ________ the bond's duration.

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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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The interest rate that equates the present value of payments received from a debt instrument with its value today is the

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An equal decrease in all bond interest rates

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

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The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

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The price of a coupon bond and the yield to maturity are ________ related; that is,as the yield to maturity ________,the price of the bond ________.

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When the ________ interest rate is low,there are greater incentives to ________ and fewer incentives to ________.

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The interest rate on a consol equals the

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The interest rate that describes how well a lender has done in real terms after the fact is called the

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A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of

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When talking about a coupon bond,face value and ________ mean the same thing.

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A fully amortized loan is another name for

Correct AnswerverifiedShow Answer

For a 3-year simple loan of $10,000 at 10 percent,the amount to be repaid is

Correct AnswerverifiedShow Answer

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

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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

Correct AnswerverifiedShow Answer

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All else equal,the the coupon rate on a bond,the the bond's duration.

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The yield to maturity is than the rate when the bond price is its face value.

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The price of a coupon bond and the yield to maturity are related; that is,as the yield to maturity ,the price of the bond .

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When the interest rate is low,there are greater incentives to and fewer incentives to .

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