Chapter 4 HW
If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is A. 5 percent. B. 10 percent. C. 12.5 percent. D. 15 percent.
B
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 A. the real interest rate. B. the nominal exchange rate. C. the expected inflation rate. D. the nominal interest rate.
C
The concept of ________ is based on the common−sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. A. future value B. deflation C. present value D. interest
C
The present value of an expected future payment ________ as the interest rate increases. A. is constant B. rises C. falls D. is unaffected
C
A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date. A. coupon bond; discount B. discount bond; discount C. coupon bond; face D. discount bond; face
D
In which of the following situations would you prefer to be the lender? A. The interest rate is 13 percent and the expected inflation rate is 15 percent. B. The interest rate is 4 percent and the expected inflation rate is 1 percent. C. The interest rate is 9 percent and the expected inflation rate is 7 percent. D. The interest rate is 25 percent and the expected inflation rate is 50 percent.
B
To pay for college, you have just taken out a $1,000 government loan that makes you pay $126 per year for 25 years. However, you don't have to start making these payments until you graduate from college two years from now. Why is the yield to maturity necessarily less than 12% (this is the yield to maturity on a normal $1,000 fixed-payment loan in which you pay $126 per year for 25 years)? A. This is the case because market interest rates are less than 12%. B. This is the case because the loan has a government guarantee. C. This is the case because the first payment due begins at a future date. D. This is the case because of the known effects of inflation.
C
If the nominal interest rate is 2% and the expected rate of inflation is 3%, then the real interest rate is A. 00%. B. 33%. C. 11%. D. −1%. E. 22%.
D
Which of the following $1,000 faceminus−value securities has the highest yield to maturity? A. A 12 percent coupon bond selling for $1,100 B. A 5 percent coupon bond selling for $1,000 C. A 10 percent coupon bond selling for $1,000 D. A 12 percent coupon bond selling for $1,000
D
