Question 1

A long-term bond's price is less affected by interest rate movements than a short-term bond's price.

Accepted Answer

A) True 
 B)False

Question 2

(I) A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. (II) A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date.

Accepted Answer

A)  (I) is true, (II) false.
B)  (I) is false, (II) true.
C)  Both are true.
D)  Both are false.

Question 3

What is interest-rate risk and how is it measured?

Accepted Answer

The answer of What is interest-rate risk and how is...

Question 4

Dollars received in the future are worth ________ than dollars received today. The process of calculating what dollars received in the future are worth today is called ________.

Accepted Answer

A)  more; discounting
B)  less; discounting
C)  more; inflating
D)  less; inflating

Question 5

Why are long-term bonds more risky than short-term bonds?

Accepted Answer

Long-term bonds are generally considered...

Question 6

The interest rate that is adjusted for actual changes in the price level is called the

Accepted Answer

A)  ex post real interest rate.
B)  expected interest rate.
C)  ex ante real interest rate.
D)  none of the above.

Question 7

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?

Accepted Answer

A)  5 percent
B)  10 percent
C)  15 percent
D)  20 percent C

Question 8

(I) Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for short-term bonds.

Accepted Answer

A)  (I) is true, (II) false.
B)  (I) is false, (II) true.
C)  Both are true.
D)  Both are false.

Question 9

In which of the following situations would you prefer to be making a loan?

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. B

Question 10

With an interest rate of 10 percent, the present value of a security that pays $1,100 next year and $1,460 four years from now is approximately

Accepted Answer

A)  $1,000.
B)  $2,000.
C)  $2,560.
D)  $3,000.

Question 11

If a $5,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

Accepted Answer

A)  0 percent.
B)  5 percent.
C)  10 percent.
D)  20 percent.

Question 12

Which of the following are true for a coupon bond?

Accepted Answer

A)  When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B)  The price of a coupon bond and the yield to maturity are negatively related.
C)  The yield to maturity is greater than the coupon rate when the bond price is below the par value.
D)  All of the above are true.
E)  Only A and B of the above are true.

Question 13

A ________ is a type of loan that has the same cash flow payment every year throughout the life of the loan.

Accepted Answer

A)  discount loan
B)  simple loan
C)  fixed-payment loan
D)  interest-free loan

Question 14

Why may a bond's rate of return differ from its yield to maturity?

Accepted Answer

The answer of Why may a bond's rate of return...

Question 15

The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later is

Accepted Answer

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

Question 16

Which of the following are generally true of all bonds?

Accepted Answer

A)  The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period.
B)  A rise in interest rates is associated with a fall in bond prices, resulting in capital losses on bonds whose term to maturities are longer than the holding period.
C)  The longer a bond's maturity, the greater is the price change associated with a given interest rate change.
D)  All of the above are true.
E)  Only A and B of the above are true.

Question 17

With an interest rate of 5 percent, the present value of $100 received one year from now is approximately

Accepted Answer

A)  $100.
B)  $105.
C)  $95.
D)  $90.

Question 18

For a simple loan, the simple interest rate equals the

Accepted Answer

A)  real interest rate.
B)  nominal interest rate.
C)  current yield.
D)  yield to maturity.

Question 19

Unless a bond defaults, an investor cannot lose money investing in bonds.

Accepted Answer

A) True 
 B)False

Question 20

If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately

Accepted Answer

A)  9 percent.
B)  10 percent.
C)  11 percent.
D)  12 percent. C

Exam 3: What Do Interest Rates Mean and What Is Their Role in Valuation

A long-term bond's price is less affected by interest rate movements than a short-term bond's price.

Correct AnswerverifiedShow Answer

(I) A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. (II) A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date.

Correct AnswerverifiedShow Answer

What is interest-rate risk and how is it measured?

Correct AnswerverifiedShow Answer

Dollars received in the future are worth ________ than dollars received today. The process of calculating what dollars received in the future are worth today is called ________.

Correct AnswerverifiedShow Answer

Why are long-term bonds more risky than short-term bonds?

Correct AnswerAnswered by ExamLex AILong-term bonds are generally considered...View AnswerShow Answer

The interest rate that is adjusted for actual changes in the price level is called the

Correct AnswerverifiedShow Answer

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?

Correct AnswerverifiedC

(I) Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for short-term bonds.

Correct AnswerverifiedShow Answer

In which of the following situations would you prefer to be making a loan?

Correct AnswerverifiedB

With an interest rate of 10 percent, the present value of a security that pays $1,100 next year and $1,460 four years from now is approximately

Correct AnswerverifiedShow Answer

If a $5,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

Correct AnswerverifiedShow Answer

Which of the following are true for a coupon bond?

Correct AnswerverifiedShow Answer

A ________ is a type of loan that has the same cash flow payment every year throughout the life of the loan.

Correct AnswerverifiedShow Answer

Why may a bond's rate of return differ from its yield to maturity?

Correct AnswerverifiedShow Answer

The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later is

Correct AnswerverifiedShow Answer

Which of the following are generally true of all bonds?

Correct AnswerverifiedShow Answer

With an interest rate of 5 percent, the present value of $100 received one year from now is approximately

Correct AnswerverifiedShow Answer

For a simple loan, the simple interest rate equals the

Correct AnswerverifiedShow Answer

Unless a bond defaults, an investor cannot lose money investing in bonds.

Correct AnswerverifiedShow Answer

If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately

Correct AnswerverifiedC

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Dollars received in the future are worth than dollars received today. The process of calculating what dollars received in the future are worth today is called .

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Answered by ExamLex AI
Long-term bonds are generally considered...
View Answer

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C

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B

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C