Question 1

Treasury STRIPS are:

Accepted Answer

A)   zero-coupon bonds issued by the U.S. Treasury with maturities of one year or less.
B)   currently quoted in 32nds of a dollar.
C)   zero-coupon securities.
D)   a type of mortgage bond.
E)   coupon securities created from the interest and principal payments of Treasury bonds.

Question 2

The rate which an investor pays a brokerage firm for a margin loan is based on a negotiated premium which is added to which one of the following rates?

Accepted Answer

A)   prime
B)   call
C)   discount
D)   T-bill
E)   Federal funds

Question 3

Which one of the following borrowers will pay the rates depicted on a Treasury yield curve?

Accepted Answer

A)   large corporation
B)   municipal government
C)   bank's best customers
D)   high-risk borrower
E)   default-free borrower

Question 4

A Treasury bill is quoted at a bank discount yield of 1.21 percent and has 15 days to maturity.What is the bond equivalent yield given that this is a leap year?

Accepted Answer

A)   1.16 percent
B)   1.18 percent
C)   1.20 percent
D)   1.22 percent
E)   1.23 percent

Question 5

A bond has a nominal rate of return of 5.87 percent and the inflation rate is 4.13 percent.What is the approximate real rate?

Accepted Answer

A)   1.62 percent
B)   1.70 percent
C)   1.74 percent
D)   1.83 percent
E)   1.88 percent

Question 6

Which one of the following statements is correct?

Accepted Answer

A)   The yield curve relates time to maturity to interest rates on zero-coupon bonds.
B)   The yield curve is based on Treasury bill yields.
C)   The term structure of interest rates is based on default-free, pure discount securities.
D)   The term structure of interest rates is based on default-free, coupon bonds.
E)   The yield curve ignores default risk while the term structure includes a default risk premium.

Question 7

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Accepted Answer

A)   $2,998.09
B)   $3,009.16
C)   $3,105.02
D)   $3,128.10
E)   $3,133.40

Question 8

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Accepted Answer

A)   expectations theory
B)   forward rate theory
C)   market hypothesis
D)   maturity preference theory
E)   Fisher hypothesis

Question 9

The variable f1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Accepted Answer

A)   based on the prior one-year rate.
B)   at 1 percent.
C)   based on a 1 percent increase from the current rate.
D)   commencing in one year.
E)   based on a 1 percent probability of occurrence.

Question 10

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Accepted Answer

A)   Freddie Mac
B)   Ginnie Mae
C)   T-note
D)   T-bill
E)   T-bond

Question 11

A two-year STRIPS sells at an interest rate of 3.84 percent and a three-year STRIPS sells at a rate of 3.97 percent.What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

Accepted Answer

A)   4.23 percent
B)   4.36 percent
C)   4.41 percent
D)   4.45 percent
E)   4.50 percent

Question 12

Based solely on the maturity preference theory,long-term interest rates:

Accepted Answer

A)   should equal short-term rates.
B)   are unrelated to short-term rates.
C)   may be higher than or lower than short-term rates.
D)   should be lower than short-term rates.
E)   should be higher than short-term rates.

Question 13

A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 90 days.What is the price of this bill?

Accepted Answer

A)   $74,440.17
B)   $74,477.60
C)   $74,519.80
D)   $74,568.00
E)   $74,578.42

Question 14

Your credit card has an annual percentage rate of 18.9 percent and compounds interest daily.What is the effective annual rate?

Accepted Answer

A)   19.47 percent
B)   19.58 percent
C)   19.82 percent
D)   19.94 percent
E)   20.80 percent

Question 15

Which one of the following best describes a real interest rate?

Accepted Answer

A)   current rate on a U.S. Treasury bill
B)   nominal rate minus the risk-premium on an individual security
C)   market return minus the risk-free rate
D)   nominal rate minus inflation
E)   historical rate rather than a projected rate

Question 16

Pure discount bonds which are created by separating the interest and principal payments from U.S.Treasury bonds are called U.S.Treasury:

Accepted Answer

A)   notes.
B)   bills.
C)   STRIPS.
D)   SWAPS.
E)   tax-exempts.

Question 17

The Treasury yield curve is a graph which plots Treasury yields against which one of the following?

Accepted Answer

A)   corporate bond yields
B)   Fed funds rate
C)   maturities
D)   inflation rates
E)   S&P 500 yield

Question 18

A one-year STRIPS sells at an interest rate of 3.15 percent and a two-year STRIPS sells at an interest rate of 3.88 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

Accepted Answer

A)   4.44 percent
B)   4.50 percent
C)   4.54 percent
D)   4.57 percent
E)   4.62 percent

Question 19

Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?

Accepted Answer

A)   institutional
B)   financial overnight
C)   Federal funds
D)   monetary
E)   daily

Question 20

A $20,000 face value STRIPS is currently quoted at 38.642 and has 8 years to maturity.What is the yield-to-maturity?

Accepted Answer

A)   6.26 percent
B)   6.30 percent
C)   12.25 percent
D)   12.65 percent
E)   12.83 percent

Exam 9: Interest Rates

The variable f1,1 as used in the expectations theory is interpreted as the forward rate for one year:

Correct AnswerverifiedShow Answer

Your credit card has an annual percentage rate of 18.9 percent and compounds interest daily.What is the effective annual rate?

Correct AnswerverifiedShow Answer

The rate which an investor pays a brokerage firm for a margin loan is based on a negotiated premium which is added to which one of the following rates?

Correct AnswerverifiedShow Answer

Based solely on the maturity preference theory,long-term interest rates:

Correct AnswerverifiedShow Answer

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Correct AnswerverifiedShow Answer

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

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Which one of the following borrowers will pay the rates depicted on a Treasury yield curve?

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Treasury STRIPS are:

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Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

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A bond has a nominal rate of return of 5.87 percent and the inflation rate is 4.13 percent.What is the approximate real rate?

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The Treasury yield curve is a graph which plots Treasury yields against which one of the following?

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A Treasury bill has a face value of $75,000,an asked yield of 3.05 percent,and matures in 90 days.What is the price of this bill?

Correct AnswerverifiedShow Answer

A one-year STRIPS sells at an interest rate of 3.15 percent and a two-year STRIPS sells at an interest rate of 3.88 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

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A $20,000 face value STRIPS is currently quoted at 38.642 and has 8 years to maturity.What is the yield-to-maturity?

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A two-year STRIPS sells at an interest rate of 3.84 percent and a three-year STRIPS sells at a rate of 3.97 percent.What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

Correct AnswerverifiedShow Answer

Pure discount bonds which are created by separating the interest and principal payments from U.S.Treasury bonds are called U.S.Treasury:

Correct AnswerverifiedShow Answer

Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?

Correct AnswerverifiedShow Answer

A Treasury bill is quoted at a bank discount yield of 1.21 percent and has 15 days to maturity.What is the bond equivalent yield given that this is a leap year?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which one of the following best describes a real interest rate?

Correct AnswerverifiedShow Answer

The variable f_1,1 as used in the expectations theory is interpreted as the forward rate for one year:

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