Money & Banking HW #2

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

fixed-payment loan

A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant.

increase; increase

Interest-rate risk is the riskiness of an asset's returns due to

interest-rate changes

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________

lenders; borrowers

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

long-term; short-term

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________

sell; rise

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

simple loan

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

yield to maturity

The ________ is below the coupon rate when the bond price is ________ its par value.

yield to maturity; above

A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.

coupon bond; face

An increase in the time to the promised future payment ________ the present value of the payment

decreases

When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant

demand; supply

A _____ is bought at a price below its face value, and the _____ value is repaid at the maturity date

discount bond; face

Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?

wealth

Economists consider the ________ to be the most accurate measure of interest rates

yield to maturity

The price of a console equals the coupon payment

divided by the interest rate

When the price of a bond decreases, all else equal, the bond demand curve

does not shift

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

face value

The present value of an expected future payment ________ as the interest rate increases

falls