Question 1

Assuming the same coupon rate and maturity length,the difference between the yield on a Treasury Inflation Indexed Security and the yield on a nonindexed Treasury security provides insight into

Accepted Answer

A)  the nominal interest rate.
B)  the real interest rate.
C)  the nominal exchange rate.
D)  the expected inflation rate.

Question 2

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 3

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 4

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;below

Question 5

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

Accepted Answer

A)  face value.
B)  par value.
C)  deflation.
D)  discounting the future.

Question 6

If the interest rate is 5%,what is the present value of a security that pays you $1,050 next year and $1,102.50 two years from now? If this security sold for $2200,is the yield to maturity greater or less than 5%? Why?

Accepted Answer

PV = $1,050/(1.+.05)+ $1,102.5...

Question 7

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

Accepted Answer

A)  -10 percent.
B)  -5 percent.
C)  0 percent.
D)  5 percent.

Question 8

If the nominal rate of interest is 2 percent,and the expected inflation rate is -10 percent,the real rate of interest is

Accepted Answer

A)  2 percent.
B)  8 percent.
C)  10 percent.
D)  12 percent.

Question 9

In the United States during the late 1970s,the nominal interest rates were quite high,but the real interest rates were negative.From the Fisher equation,we can conclude that expected inflation in the United States during this period was

Accepted Answer

A)  irrelevant.
B)  low.
C)  negative.
D)  high.

Question 10

If a $1000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

Accepted Answer

A)  $37.50.
B)  $3.75.
C)  $375.00.
D)  $13.75

Question 11

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;borrow

Question 12

The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as

Accepted Answer

A)  the real interest rate.
B)  the nominal interest rate.
C)  the rate of inflation.
D)  the rate of deflation.

Question 13

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds.It is called the ________ when approximating the yield for a coupon bond.

Accepted Answer

A)  current yield
B)  discount yield
C)  future yield
D)  star yield

Question 14

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)  perpetuity yield.
D)  par value.

Question 15

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 16

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 17

A discount bond is also called a ________ because the owner does not receive periodic payments.

Accepted Answer

A)  zero-coupon bond
B)  municipal bond
C)  corporate bond
D)  consol

Question 18

If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration,what is the duration of the portfolio?

Accepted Answer

A)  12 years
B)  7 years
C)  6 years
D)  5 years

Question 19

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.

Question 20

Which of the following are generally TRUE of all bonds?

Accepted Answer

A)  The longer a bond's maturity,the greater is the rate of return that occurs as a result of the increase in the interest rate.
B)  Even though a bond has a substantial initial interest rate,its return can turn out to be negative if interest rates rise.
C)  Prices and returns for short-term bonds are more volatile than those for longer term bonds.
D)  A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Exam 4: The Meaning of Interest Rates

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A discount bond is also called a ________ because the owner does not receive periodic payments.

Correct AnswerverifiedShow Answer

If the nominal rate of interest is 2 percent,and the expected inflation rate is -10 percent,the real rate of interest is

Correct AnswerverifiedShow Answer

Which of the following are generally TRUE of all bonds?

Correct AnswerverifiedShow Answer

In the United States during the late 1970s,the nominal interest rates were quite high,but the real interest rates were negative.From the Fisher equation,we can conclude that expected inflation in the United States during this period was

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration,what is the duration of the portfolio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as

Correct AnswerverifiedShow Answer

An equal decrease in all bond interest rates

Correct AnswerverifiedShow Answer

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

Correct AnswerverifiedShow Answer

If the interest rate is 5%,what is the present value of a security that pays you $1,050 next year and $1,102.50 two years from now? If this security sold for $2200,is the yield to maturity greater or less than 5%? Why?

Correct AnswerverifiedPV = $1,050/(1.+.05)+ $1,102.5...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Assuming the same coupon rate and maturity length,the difference between the yield on a Treasury Inflation Indexed Security and the yield on a nonindexed Treasury security provides insight into

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Duration is

Correct AnswerverifiedShow Answer

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds.It is called the ________ when approximating the yield for a coupon bond.

Correct AnswerverifiedShow Answer

If a $1000 face value coupon bond has a coupon rate of 3.75 percent,then the coupon payment every year is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
PV = $1,050/(1.+.05)+ $1,102.5...
View Answer

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified