Question 1

U.S.government bonds that provide for bondholders to receive a fixed rate of interest plus the change in the consumer price index were designed to remove:

Accepted Answer

A)  Default risk
B)  Liquidity risk
C)  Inflation risk
D)  Interest-rate risk

Question 2

Which of the following statements is most accurate?

Accepted Answer

A)  Yield to maturity is equal to the coupon rate if the bond is held to maturity
B)  Yield to maturity is the same as the coupon rate
C)  Yield to maturity will exceed the coupon rate if the bond is purchased for face value
D)  Yield to maturity is the same as the coupon rate if the bond is purchased for face value and held to maturity

Question 3

When looking at Treasury note quotes in the Wall Street Journal, you notice that a Treasury note has an "i" following the maturity date.This indicates that this financial instrument:

Accepted Answer

A)  Is subject to risk associated with changes in the inflation rate
B)  Has an interest rate that is adjusted for inflation
C)  Has a fixed interest rate
D)  Makes coupon payments intermittently

Question 4

The holding period return on a bond:

Accepted Answer

A)  Can never be more than the yield to maturity
B)  Will equal the yield to maturity if the bond is purchased for face value and sold at a lower price
C)  Will be less than the yield to maturity if the bond is sold for more than face value
D)  Will be less than the yield to maturity if the bond is sold for less than face value

Question 5

Notice the following model of a bond market.In each situation given, explain what happens to the bond price and yield and why.

Accepted Answer

a) Expected inflation increases
b) The ...

Question 6

When expected inflation increases, for any given nominal interest rate:

Accepted Answer

A)  The real cost of repayment for bond issuers increases
B)  The real return for bondholders increases
C)  The real cost of repayment for bond issuers decreases
D)  The bond demand curve shifts right

Question 7

Many people are worried that, with the growing number of people that will be retiring in the U.S.over the next 40 years, the Social Security System will need to borrow large amounts of money.If we assume that Social Security taxes and the current eligibility age remain constant, explain the likely impact this will have on bond markets.

Accepted Answer

If the Social Security Administration (S...

Question 8

An increase in the nation's wealth, all other factors constant, would cause the:

Accepted Answer

A)  Bond supply curve to shift left
B)  Bond demand curve to shift left
C)  Bond supply curve to shift right
D)  Bond demand curve to shift right

Question 9

If the annual interest rate is 5% (.05) , the price of a three-month Treasury bill would be:

Accepted Answer

A)  $98.79
B)  $95.00
C)  $98.75
D)  $97.59

Question 10

Consider the factors that affect bond demand and bond supply.Describe how the following are likely to change during a period of robust economic growth: wealth, default risk, and general business conditions.For each, state how the factor is likely to change, and discuss the implications for bond demand/supply, bond price, and yield.Bond prices tend to decrease during periods of high economic growth.What does this reveal about which of these factors is important?

Accepted Answer

(i) Wealth affects bond demand and is li...

Question 11

In considering the holding period return, the longer the term of the bond the:

Accepted Answer

A)  Less important is the capital gain and the more important in the current yield
B)  Less important is the coupon rate and the more important is the current yield
C)  Less important is the capital gain
D)  More important is the capital gain

Question 12

The U.S.Treasury has introduced bonds where the return is indexed to the consumer price index.We should expect that these bonds, relative to other U.S.Treasury bonds, will have:

Accepted Answer

A)  Lower price and lower return due to the decreased risk
B)  Lower price and a lower fixed return since the demand for them should be higher
C)  Higher price and higher fixed return since we always seem to have some inflation
D)  Higher price and lower return due to the decreased risk from inflation in holding these bonds

Question 13

An increase in the nation's wealth, all other factors constant, would cause:

Accepted Answer

A)  Bond prices to fall and yields to increase
B)  Bond prices and yields to increase
C)  Bond prices to rise and yields to decrease
D)  The bond supply curve to shift right

Question 14

The bid price for a bond quote is:

Accepted Answer

A)  The price at which the bond dealer is willing to sell the bond
B)  The price at which the bond dealer is willing to purchase the bond
C)  Fixed over the life of a bond
D)  Determined solely by the time left to maturity

Question 15

As general business conditions deteriorate, all other factors constant:

Accepted Answer

A)  The demand for bonds will decrease
B)  The supply of bonds will increase
C)  Bond prices will decrease
D)  Bond yields will increase

Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

Which of the following statements is most accurate?

Correct Answer
verified

Correct Answer
verified
If the Social Security Administration (S...
View Answer

An increase in the nation's wealth, all other factors constant, would cause the:

Correct Answer
verified

The holding period return on a bond:

Correct Answer
verified

An increase in the nation's wealth, all other factors constant, would cause:

Correct Answer
verified

The U.S.Treasury has introduced bonds where the return is indexed to the consumer price index.We should expect that these bonds, relative to other U.S.Treasury bonds, will have:

Correct Answer
verified

Correct Answer
verified
(i) Wealth affects bond demand and is li...
View Answer

Notice the following model of a bond market.In each situation given, explain what happens to the bond price and yield and why.

Correct Answer
verified
a) Expected inflation increases
b) The ...
View Answer

U.S.government bonds that provide for bondholders to receive a fixed rate of interest plus the change in the consumer price index were designed to remove:

Correct Answer
verified

In considering the holding period return, the longer the term of the bond the:

Correct Answer
verified

When expected inflation increases, for any given nominal interest rate:

Correct Answer
verified

As general business conditions deteriorate, all other factors constant:

Correct Answer
verified

If the annual interest rate is 5% (.05) , the price of a three-month Treasury bill would be:

Correct Answer
verified

The bid price for a bond quote is:

Correct Answer
verified

When looking at Treasury note quotes in the Wall Street Journal, you notice that a Treasury note has an "i" following the maturity date.This indicates that this financial instrument:

Correct Answer
verified

Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

Which of the following statements is most accurate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf the Social Security Administration (S...View AnswerShow Answer

An increase in the nation's wealth, all other factors constant, would cause the:

Correct AnswerverifiedShow Answer

The holding period return on a bond:

Correct AnswerverifiedShow Answer

An increase in the nation's wealth, all other factors constant, would cause:

Correct AnswerverifiedShow Answer

The U.S.Treasury has introduced bonds where the return is indexed to the consumer price index.We should expect that these bonds, relative to other U.S.Treasury bonds, will have:

Correct AnswerverifiedShow Answer

Correct Answerverified(i) Wealth affects bond demand and is li...View AnswerShow Answer

Notice the following model of a bond market.In each situation given, explain what happens to the bond price and yield and why.

Correct Answerverified a) Expected inflation increasesb) The ...View AnswerShow Answer

U.S.government bonds that provide for bondholders to receive a fixed rate of interest plus the change in the consumer price index were designed to remove:

Correct AnswerverifiedShow Answer

In considering the holding period return, the longer the term of the bond the:

Correct AnswerverifiedShow Answer

When expected inflation increases, for any given nominal interest rate:

Correct AnswerverifiedShow Answer

As general business conditions deteriorate, all other factors constant:

Correct AnswerverifiedShow Answer

If the annual interest rate is 5% (.05) , the price of a three-month Treasury bill would be:

Correct AnswerverifiedShow Answer

The bid price for a bond quote is:

Correct AnswerverifiedShow Answer

When looking at Treasury note quotes in the Wall Street Journal, you notice that a Treasury note has an "i" following the maturity date.This indicates that this financial instrument:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
If the Social Security Administration (S...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
(i) Wealth affects bond demand and is li...
View Answer

Correct Answer
verified
a) Expected inflation increases
b) The ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified