ECON 303: Chapter 4 Quiz

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate if interest is A) 2 percent B) 8 percent C) 10 percent D) 12 percent

12 percent

Which of the following are generally TRUE of bonds? A) a rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods B) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change C) Prices and returns for short-term bonds are more volatile than those for longer-term bonds D) A bond's return equals the yield to maturity when the time to maturity is the same as the holding period

A bond's return equals the yield to maturity when the time to maturity is the same as the holding period

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

consol.

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 7 percent coupon selling for $10,000 C) a $10,000 face-value security with a 10 percent coupon selling for $10,000 D) a $10,000 face-value security with a 10 percent coupon selling for $9,000

a $10,000 face-value security with a 10 percent coupon selling for $9,000

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? A) a bond with ten years to maturity B) a bond with five years to maturity C) a bond with one year to maturity D) a bond with twenty years to maturity

a bond with one year to maturity

Negative yields to maturity imply that bond purchasers are better off to hold cash. Acceptance of slightly negative yields by purchasers in recent times suggest that the A) governments have issued too many bonds B) inflation rate is positive C) decision makers are only concerned with yields D) convenience of storing large sums is also important to decisions

convenience of storing large sums is also important to decisions

The _________ is the final amount that will be paid to the holder of a coupon bond. A) discount value B) present value C) coupon value D) face value

face value

The present value of an expected future payment ___________ as the interest rate increases. A) rises B) is constant C) falls D) is unaffected

falls

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

greater; coupon; below

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

installment loans and mortgages are frequently of the fixed payment type.