Homework 2 MB

10) Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant. A) long-term; short-term B) short-term; short-term C) short-term; long-term D) long-term; long-term

A

17) The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds. A) downward; inverse B) upward; inverse C) downward; direct D) upward; direct

A

19) A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of A) 8 percent. B) 10 percent. C) 12 percent. D) 14 percent.

A

21) If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ for bonds and the bond price will ________. A) demand; rise B) supply; fall C) supply; rise D) demand; fall

A

23) Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________. A) decreases; left B) increases; right C) increases; left D) decreases; right

A

24) Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) left; rises B) left; falls C) right; falls D) right; rises

A

3) A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid. A) coupon bond; face B) discount bond; face C) coupon bond; discount D) discount bond; discount

A

8) The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price. A) rate of return B) yield to maturity C) current yield D) yield rate

A

15) If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________. A) increase; increase B) decrease; increase C) increase; decrease D) decrease; decrease

B

18) Which of the following $5,000 face-value securities has the highest yield to maturity? A) A 6 percent coupon bond selling for $5,500 B) A 12 percent coupon bond selling for $4,500 C) A 6 percent coupon bond selling for $5,000 D) A 10 percent coupon bond selling for $5,000

B

4) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is A) $1,300. B) $650. C) $130. D) $13.

B

1) Which of the following statements best explains how the use of money in an economy increases economic efficiency? A) Money increases economic efficiency because it discourages specialization. B) Money cannot have an effect on economic efficiency. C) Money increases economic efficiency because it decreases transactions costs. D) Money increases economic efficiency because it is costless to produce.

C

11) The nominal interest rate minus the expected rate of inflation A) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. B) defines the discount rate. C) defines the real interest rate. D) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.

C

16) If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________. A) decrease; increase B) decrease; decrease C) increase; decrease D) increase; increase

C

2) Which of the following are true of fixed payment loans? A) The borrower pays interest periodically and the principal at the maturity date. B) Commercial loans to businesses are often of this type. C) Installment loans and mortgages are frequently of the fixed payment type. D) The borrower repays both the principal and interest at the maturity date.

C

22) During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) rises; left B) falls; left C) rises; right D) falls; right

C

7) A coupon bond that has no maturity date and no repayment of principal is called a A) cabinet. B) Treasury note. C) consol. D) Treasury bill.

C

9) The riskiness of an asset's returns due to changes in interest rates is A) exchange-rate risk. B) price risk. C) interest-rate risk. D) asset risk.

C

12) When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. A) real; lend; borrow B) nominal; lend; borrow C) market; lend; borrow D) real; borrow; lend

D

13) In which of the following situations would you prefer to be the lender? A) The interest rate is 9 percent and the expected inflation rate is 7 percent. B) The interest rate is 25 percent and the expected inflation rate is 50 percent. C) The interest rate is 13 percent and the expected inflation rate is 15 percent. D) The interest rate is 4 percent and the expected inflation rate is 1 percent.

D

14) 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 A) 7 percent. B) 22 percent. C) -15 percent. D) -8 percent.

D

20) Which of the following bonds would you prefer to be buying? A) A $10,000 face-value security with a 9 percent coupon selling for $10,000 B) A $10,000 face-value security with a 10 percent coupon selling for $10,000 C) A $10,000 face-value security with a 7 percent coupon selling for $10,000 D) A $10,000 face-value security with a 10 percent coupon selling for $9,000

D

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

D

6) The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. A) less; perpetuity; below B) greater; coupon; above C) greater; perpetuity; above D) greater; coupon; below

D