Question 1

A ________ is bought at a price below its face value,and the ________ value is repaid at the maturity date.

Accepted Answer

A)  coupon bond; discount
B)  discount bond; discount
C)  coupon bond; face
D)  discount bond; face

Question 2

All else equal,when interest rates ________,the duration of a coupon bond ________.

Accepted Answer

A)  rise; falls
B)  rise; increases
C)  falls; falls
D)  falls; does not change

Question 3

If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

Accepted Answer

A)  2.5 percent.
B)  5 percent.
C)  7.5 percent.
D)  10 percent.

Question 4

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 5

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; longer

Question 6

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 7

The ________ interest rate is adjusted for expected changes in the price level.

Accepted Answer

A)  ex ante real
B)  ex post real
C)  ex post nominal
D)  ex ante nominal

Question 8

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

Accepted Answer

A)  5 percent
B)  10 percent
C)  -5 percent
D)  25 percent

Question 9

The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

Accepted Answer

A)  initial price.
B)  face value.
C)  interest rate.
D)  coupon rate.

Question 10

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 11

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

Accepted Answer

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

Question 12

The price of a consol equals the coupon payment

Accepted Answer

A)  times the interest rate.
B)  plus the interest rate.
C)  minus the interest rate.
D)  divided by the interest rate.

Question 13

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 between time t and time t + 1.
D)  The return can be expressed as the sum of the discount yield and the rate of capital gains.

Question 14

The duration of a coupon bond increases

Accepted Answer

A)  the longer is the bond's term to maturity.
B)  when interest rates increase.
C)  the higher the coupon rate on the bond.
D)  the higher the bond price.

Question 15

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 16

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 17

The ________ is the final amount that will be paid to the holder of a coupon bond.

Accepted Answer

A)  discount value
B)  coupon value
C)  face value
D)  present value

Question 18

In which of the following situations would you prefer to be the lender?

Accepted Answer

A)  The interest rate is 9 percent and the expected inflation rate is 7 percent.
B)  The interest rate is 4 percent and the expected inflation rate is 1 percent.
C)  The interest rate is 13 percent and the expected inflation rate is 15 percent.
D)  The interest rate is 25 percent and the expected inflation rate is 50 percent.

Question 19

Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%.Should you follow his advice?

Accepted Answer

It depends on where you think interest r...

Question 20

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's

Accepted Answer

A)  coupon rate.
B)  maturity rate.
C)  face value rate.
D)  payment rate.

Exam 4: Understanding Interest Rates

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's

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What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

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An equal decrease in all bond interest rates

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A ________ is bought at a price below its face value,and the ________ value is repaid at the maturity date.

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

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The ________ is the final amount that will be paid to the holder of a coupon bond.

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A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

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

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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 duration of a coupon bond increases

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The yield to maturity for a one-year discount bond equals the increase in price over the year,divided by the

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Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%.Should you follow his advice?

Correct AnswerverifiedIt depends on where you think interest r...View AnswerShow Answer

The ________ interest rate is adjusted for expected changes in the price level.

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If a perpetuity has a price of $500 and an annual interest payment of $25,the interest rate is

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In which of the following situations would you prefer to be the lender?

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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.

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All else equal,when interest rates ________,the duration of a coupon bond ________.

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The price of a consol equals the coupon payment

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

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A is bought at a price below its face value,and the value is repaid at the maturity date.

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

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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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It depends on where you think interest r...
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All else equal,when interest rates ,the duration of a coupon bond .

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