Question 1

The riskiness of an asset's returns due to changes in interest rates is

Accepted Answer

A)  exchange-rate risk.
B)  price risk.
C)  asset risk.
D)  interest-rate risk.

Question 2

If you expect the inflation rate to be 15 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)  7 percent.
B)  22 percent.
C)  -15 percent.
D)  -8 percent.

Question 3

The sum of the current yield and the rate of capital gain is called the

Accepted Answer

A)  rate of return.
B)  discount yield.
C)  pertuity yield.
D)  par value.

Question 4

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.

Question 5

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 6

Which of the following are true for a coupon bond?

Accepted Answer

A)  When the coupon bond is priced at its face value,the yield to maturity equals the coupon rate.
B)  The price of a coupon bond and the yield to maturity are positively related.
C)  The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D)  The yield is less than the coupon rate when the bond price is below the par value.

Question 7

Economists consider the ________ to be the most accurate measure of interest rates.

Accepted Answer

A)  simple interest rate.
B)  current yield.
C)  yield to maturity.
D)  real interest rate.

Question 8

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 9

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

Accepted Answer

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

Question 10

The ________ interest rate more accurately reflects the true cost of borrowing.

Accepted Answer

A)  nominal
B)  real
C)  discount
D)  market

Question 11

An equal increase in all bond interest rates

Accepted Answer

A)  increases the return to all bond maturities by an equal amount.
B)  decreases the return to all bond maturities by an equal amount.
C)  has no effect on the returns to bonds.
D)  decreases long-term bond returns more than short-term bond returns.

Question 12

If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

Accepted Answer

A)  9 percent
B)  10 percent
C)  11 percent
D)  12 percent

Question 13

If you expect the inflation rate to be 4 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)  -3 percent.
B)  -2 percent.
C)  3 percent.
D)  7 percent.

Question 14

The nominal interest rate minus the expected rate of inflation

Accepted Answer

A)  defines the real interest rate.
B)  is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.
C)  is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.
D)  defines the discount rate.

Question 15

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 16

Which of the following are generally true of bonds?

Accepted Answer

A)  The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period.
B)  A rise in interest rates is associated with a fall in bond prices,resulting in capital gains on bonds whose terms to maturity are longer than the holding periods.
C)  The longer a bond's maturity,the smaller is the size of the price change associated with an interest rate change.
D)  Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Question 17

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.

Question 18

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 19

If a security pays $55 in one year and $133 in three years,its present value is $150 if the interest rate is

Accepted Answer

A)  5 percent.
B)  10 percent.
C)  12.5 percent.
D)  15 percent.

Question 20

Which of the following are true of fixed payment loans?

Accepted Answer

A)  The borrower repays both the principal and interest at the maturity date.
B)  Installment loans and mortgages are frequently of the fixed payment type.
C)  The borrower pays interest periodically and the principal at the maturity date.
D)  Commercial loans to businesses are often of this type.

Exam 4: Understanding Interest Rates

If you expect the inflation rate to be 4 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

Which of the following are true of fixed payment loans?

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If a security pays $110 next year and $121 the year after that,what is its yield to maturity if it sells for $200?

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The nominal interest rate minus the expected rate of inflation

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A fully amortized loan is another name for

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If a security pays $55 in one year and $133 in three years,its present value is $150 if the interest rate is

Correct AnswerverifiedShow Answer

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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Which of the following are true for a coupon bond?

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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

Correct AnswerverifiedShow Answer

Which of the following are generally true of bonds?

Correct AnswerverifiedShow Answer

The sum of the current yield and the rate of capital gain is called the

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Economists consider the ________ to be the most accurate measure of interest rates.

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An equal increase in all bond interest rates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

All of the following are examples of coupon bonds except

Correct AnswerverifiedShow Answer

The riskiness of an asset's returns due to changes in interest rates is

Correct AnswerverifiedShow Answer

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

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

Correct AnswerverifiedShow Answer

If you expect the inflation rate to be 15 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

The ________ interest rate more accurately reflects the true cost of borrowing.

Correct AnswerverifiedShow Answer

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