chapter 3- FIN3244

The interest rate that financial economists consider to be the most accurate measure is the yield on a discount basis. current yield. coupon rate. yield to maturity.

yield to maturity.

If a $5,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is Group of answer choices 20 percent.5 percent.0 percent.10 percent.

0

The yield to maturity on a consol bond that pays $200 yearly and sells for $1,000 is Group of answer choices 20 percent.25 percent.5 percent.10 percent.

=200/1000=20%

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 Group of answer choices none of the above. -8 percent. 7 percent. -15 percent. 22 percent.

Answer is -8%: Real Interest Rate = Nominal Rate - Inflation RateReal Interest Rate = 7.00% - 15.00%Real Interest Rate = -8.00% So, the real interest rate on this bond is -8.00%

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 one year later?

D.25%. coupon payment received during the year => face value * coupon rate= $1000*5%=>$50. capital gains received = sale value - purchase value =>$1200-1000 =>$200. total return = coupon payment + capital gains =>50+200 =>$250. return = total return / purchase price *100 =>$250 / 1000*100 =>25%.

If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is Group of answer choices 50 percent.100 percent.5 percent.10 percent.

We see that the Yield to maturity=(Face Value/Price)^(1/maturity)-1=(10000/5000)^(1/1)-1=100.00000%

In which of the following situations would you prefer to be making a loan? Group of answer choices The interest rate is 4 percent and the expected inflation rate is 1 percent. The interest rate is 25 percent and the expected inflation rate is 50 percent. The interest rate is 13 percent and the expected inflation rate is 15 percent. The interest rate is 9 percent and the expected inflation rate is 7 percent.

When you are giving out a loan, you prefer maximum real returns; real return = interest rate - inflation option d ) Real return = 9%-7%=2% option a ) Real return = 4%-1%=3% option c ) Real return = 15%-13%=2% option b ) Real return = 25%-50%=-25% answer IS A

The current yield on a coupon bond is the bond's ________ divided by its ________. Group of answer choices annual return; price annual coupon payment; price annual coupon payment; face value annual return; face value

annual coupon payment; price

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 one year later? Group of answer choicesNone of the above-5 percent25 percent5 percent10 percent

coupon payment received during the year => face value * coupon rate= $1000*5%=>$50. capital gains received = sale value - purchase value =>$1200-1000 =>$200. total return = coupon payment + capital gains =>50+200 =>$250. return = total return / purchase price *100 =>$250 / 1000*100 =>25%.

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 ________. Group of answer choices less; discounting more; discounting more; inflating less; inflating

less, discounting

The concept of ________ is based on the notion that a dollar paid to you in the future is less valuable to you than a dollar today.

present value

The concept of ________ is based on the notion that a dollar paid to you in the future is less valuable to you than a dollar today. Group of answer choices present value deflation interest future value

present value

When the lender provides the borrower with an amount of funds that must be repaid to the lender at the maturity date, along with an additional payment for the interest, it is called a Group of answer choices simple loan.fixed-payment loan.discount loan.none of the above.

simple loan.