Question 1

Which of the following $1,000 face-value securities has the highest yield to maturity?

Accepted Answer

A)   A 5 percent coupon bond with a price of $600
B)   A 5 percent coupon bond with a price of $800
C)   A 5 percent coupon bond with a price of $1,000
D)   A 5 percent coupon bond with a price of $1,200

Question 2

If a financial institution has 50 percent of its portfolio in a bond with a five-year duration and 50 percent 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 3

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 4

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

Accepted Answer

A)   sum
B)   difference
C)   multiple
D)   log

Question 5

What is a coupon bond? Describe its basic properties.

Accepted Answer

A coupon bonds pays the owner a fixed in...

Question 6

Comparing a discount bond and a coupon bond with the same maturity,________.

Accepted Answer

A)   the coupon bond has the greater effective maturity
B)   the discount bond has the greater effective maturity
C)   the effective maturity cannot be calculated for a coupon bond
D)   the effective maturity cannot be calculated for a discount bond

Question 7

Your friend tells you that she bought a 10-year to maturity discount bond that she plans to hold until maturity in order to finance her daughter's university education.She also tells you that she is worried that due to interest-rate-risk she may suffer significant capital losses if interest rates increase.Are her fears justified?

Accepted Answer

No,her fear of significant capital losse...

Question 8

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 9

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

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 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

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?

Accepted Answer

A)   A bond with one year to maturity
B)   A bond with five years to maturity
C)   A bond with ten years to maturity
D)   A bond with twenty years to maturity

Question 12

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 13

Which of the following $1,000 face-value securities has the highest yield to maturity?

Accepted Answer

A)   A 5 percent coupon bond selling for $1,000
B)   A 10 percent coupon bond selling for $1,000
C)   A 12 percent coupon bond selling for $1,000
D)   A 12 percent coupon bond selling for $1,100

Question 14

Which of the following is 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.

Question 15

A relative has just won a state lottery paying $20 million in installments of $1 million per year for twenty years.Your relative states that she is $20 million richer.Is she correct? Create a simple example for two years to illustrate your position.

Accepted Answer

The relative is incorrect.The discounted...

Question 16

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 17

An asset's interest rate risk ________ as the duration of the asset ________.

Accepted Answer

A)   increases; decreases
B)   decreases; decreases
C)   decreases; increases
D)   remains constant; increases

Question 18

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 19

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of ________.

Accepted Answer

A)   3 percent
B)   20 percent
C)   25 percent
D)   33.3 percent

Question 20

All of the following are examples of coupon bonds except ________.

Accepted Answer

A)   Corporate bonds
B)   Treasury bills
C)   Zero coupon bonds
D)   Government bonds

Exam 4: Understanding Interest Rates

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

Correct Answer
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Which of the following is true of fixed payment loans?

Correct Answer
verified

All of the following are examples of coupon bonds except ________.

Correct Answer
verified

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

Correct Answer
verified

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

Correct Answer
verified

A relative has just won a state lottery paying $20 million in installments of $1 million per year for twenty years.Your relative states that she is $20 million richer.Is she correct? Create a simple example for two years to illustrate your position.

Correct Answer
verified
The relative is incorrect.The discounted...
View Answer

Comparing a discount bond and a coupon bond with the same maturity,________.

Correct Answer
verified

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 Answer
verified

An asset's interest rate risk as the duration of the asset .

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
No,her fear of significant capital losse...
View Answer

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of ________.

Correct Answer
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Which of the following $1,000 face-value securities has the highest yield to maturity?

Correct Answer
verified

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 Answer
verified

Which of the following $1,000 face-value securities has the highest yield to maturity?

Correct Answer
verified

What is a coupon bond? Describe its basic properties.

Correct Answer
verified
A coupon bonds pays the owner a fixed in...
View Answer

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

Correct Answer
verified

The price of a consol equals the coupon payment ________.

Correct Answer
verified

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

Correct Answer
verified

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?

Correct Answer
verified

Exam 4: Understanding Interest Rates

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

Correct AnswerverifiedShow Answer

Which of the following is true of fixed payment loans?

Correct AnswerverifiedShow Answer

All of the following are examples of coupon bonds except ________.

Correct AnswerverifiedShow Answer

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.

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

A relative has just won a state lottery paying $20 million in installments of $1 million per year for twenty years.Your relative states that she is $20 million richer.Is she correct? Create a simple example for two years to illustrate your position.

Correct AnswerverifiedThe relative is incorrect.The discounted...View AnswerShow Answer

Comparing a discount bond and a coupon bond with the same maturity,________.

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

An asset's interest rate risk ________ as the duration of the asset ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNo,her fear of significant capital losse...View AnswerShow Answer

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of ________.

Correct AnswerverifiedShow Answer

Which of the following $1,000 face-value securities has the highest yield to maturity?

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

Which of the following $1,000 face-value securities has the highest yield to maturity?

Correct AnswerverifiedShow Answer

What is a coupon bond? Describe its basic properties.

Correct AnswerverifiedA coupon bonds pays the owner a fixed in...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The price of a consol equals the coupon payment ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The relative is incorrect.The discounted...
View Answer

Correct Answer
verified

Correct Answer
verified

An asset's interest rate risk as the duration of the asset .

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
No,her fear of significant capital losse...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A coupon bonds pays the owner a fixed in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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