Question 1

When the price of a coupon bond increases

Accepted Answer

A)   the coupon rate declines.
B)   the coupon rate increases.
C)   the current yield declines.
D)   the current yield increases.E) B) and C)
F) C) and D)

Question 2

If the current price of a bond is less 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 current yield.
C)   the coupon rate must be greater than the current yield.
D)   the coupon rate must be equal to the current yield.E) B) and D)
F) B) and C)

Question 3

The yield to maturity on a new one-year discount bond equals

Accepted Answer

A)   (FV- P) /P.
B)   (D - FV) /P.
C)   (FV - P) /FV.
D)   (P - FV) /FV.E) A) and C)
F) All of the above

Question 4

A borrower and a lender agree on a mortgage interest rate.If inflation turns out to be less than expected

Accepted Answer

A)   the actual real interest rate will exceed the expected real interest rate.
B)   the actual real interest rate will be less than the expected real interest rate.
C)   the actual nominal interest rate will be higher than expected.
D)   the actual nominal interest rate will be less than expected.E) All of the above
F) A) and B)

Question 5

A coupon bond has an annual coupon of $75,a par value of $1,000,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.E) None of the above
F) A) and C)

Question 6

If the annual interest rate is 9%,what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

Accepted Answer

A)   $8,200
B)   $8,417
C)   $10,000
D)   $11,881E) C) and D)
F) B) and D)

Question 7

If you deposit $500 in a savings account at an annual interest rate of 5%,how much will you have in the account at the end of five years?

Accepted Answer

A)   $392
B)   $550
C)   $625
D)   $638E) None of the above
F) A) and D)

Question 8

The total payment to a lender for a one-period simple loan is

Accepted Answer

A)   (P + i) n.
B)   P + i.
C)   i(1 + i) .
D)   P(1 + i) .E) A) and B)
F) B) and C)

Question 9

Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to

Accepted Answer

A)   rising yields in secondary markets which led to a decline in the price of mortgage-backed securities.
B)   falling yields in secondary markets which led to a decline in the price of mortgage-backed securities.
C)   their inability to issue new mortgages.
D)   more rapid pre-payment of mortgages.E) None of the above
F) All of the above

Question 10

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.E) All of the above
F) A) and C)

Question 11

Suppose you had $1,000 and were deciding between two investments.One pays 5% a year for two years while the other pays 8% the first year and 2% the second year.Which investment would provide a higher return?

Accepted Answer

The first investment which earned 5% a y...

Question 12

A one-year discount bond has a face value of $1,000 and a price of $925.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Accepted Answer

The yield to maturit...

Question 13

If,while you are holding a coupon bond,its market price falls,you can be sure that

Accepted Answer

A)   the coupon payment you are receiving must have been reduced.
B)   the interest rate on other similar bonds must have fallen.
C)   the interest rate on other similar bonds must have risen.
D)   the par value of the bond must have declined.E) All of the above
F) C) and D)

Question 14

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

Accepted Answer

A)   mortgage
B)   car loan
C)   student loan
D)   corporate bondE) B) and C)
F) All of the above

Question 15

How long does it take prices of securities to adjust so as to eliminate arbitrage profits?

Accepted Answer

A)   seconds
B)   hours
C)   days
D)   monthsE) All of the above
F) None of the above

Question 16

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 bondE) A) and B)
F) B) and C)

Question 17

Unless otherwise indicated,when economists or investors refer to the interest rate on a financial asset,they are referring to the

Accepted Answer

A)   current yield.
B)   coupon rate.
C)   yield to maturity.
D)   prime rate.E) B) and C)
F) A) and B)

Question 18

A one-year discount bond has a face value of $1,000 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 19

What is the price of a coupon bond that has annual coupon payments of $75,a par value of $1,000,a yield to maturity of 5%,and a maturity of two years?

Accepted Answer

A)   $1,043.08
B)   $1,046.49
C)   $1,000.00
D)   $1,150.00E) A) and B)
F) A) and C)

Question 20

A discount bond involves

Accepted Answer

A)   interest payments from the borrower to the lender periodically during the life of the loan.
B)   payment by the borrower to the lender of the face value of the loan at maturity.
C)   no payment of principal by the borrower to the lender.
D)   payment of interest by the borrower to the lender every six months during the life of the loan.E) None of the above
F) A) and B)

Exam 3: Interest Rates and Rates of Return

A discount bond involves

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A borrower and a lender agree on a mortgage interest rate.If inflation turns out to be less than expected

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

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

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The yield to maturity on a new one-year discount bond equals

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Banks who held mortgage-backed securities "took a bath" during the financial crisis of 2007-2009 due to

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Unless otherwise indicated,when economists or investors refer to the interest rate on a financial asset,they are referring to the

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If,while you are holding a coupon bond,its market price falls,you can be sure that

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If you deposit $500 in a savings account at an annual interest rate of 5%,how much will you have in the account at the end of five years?

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A one-year discount bond has a face value of $1,000 and a price of $925.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Correct AnswerverifiedThe yield to maturit...View AnswerShow Answer

What is the price of a coupon bond that has annual coupon payments of $75,a par value of $1,000,a yield to maturity of 5%,and a maturity of two years?

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When the price of a coupon bond increases

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The total payment to a lender for a one-period simple loan is

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A coupon bond has an annual coupon of $75,a par value of $1,000,and a market price of $900.Its current yield equals

Correct AnswerverifiedShow Answer

Suppose you had $1,000 and were deciding between two investments.One pays 5% a year for two years while the other pays 8% the first year and 2% the second year.Which investment would provide a higher return?

Correct AnswerverifiedThe first investment which earned 5% a y...View AnswerShow Answer

A one-year discount bond has a face value of $1,000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Correct AnswerverifiedThe yield to maturit...View AnswerShow Answer

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

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If the annual interest rate is 9%,what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

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

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How long does it take prices of securities to adjust so as to eliminate arbitrage profits?

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The yield to maturit...
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The first investment which earned 5% a y...
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The yield to maturit...
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