quiz 2

The return on a 5 percent coupon $1000 bond that initially sells for $1,000 and sells for $950 next year is a. 0 percent. b. -5 percent. c. -10 percent. d. 5 percent.

a

When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. a. decreases; increases; rises b. increases; decreases; falls c. increases; increases; rises d. decreases; decreases; falls

a

Which of the following $1,000 face-value securities has the lowest yield to maturity? a. a 5 percent coupon bond selling for $1,000 b. a 10 percent coupon bond selling for $1,000 c. a 15 percent coupon bond selling for $900 d. a 15 percent coupon bond selling for $1,000

a

Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________. a. rises; left b. rises; right c. falls; left d. falls; right

b

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________. a. fall; Keynes effect b. rise; Fisher effect c. rise; Keynes effect d. fall; Fisher effect

b

If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is a. 2.5 percent. b. 5 percent. c. 7.5 percent. d. 10 percent.

b

A consol paying $20 annually when the interest rate is 5 percent has a price of a. $100. b. $200. c. $400. d. $800.

c

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant. a. raise; financial b. reduce; financial c. reduce; real d. raise; real

c

Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets. a. bonds; financial b. real estate; financial c. bonds; real d. real estate; real

c

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________. a. positively; rises; falls b. positively; rises; rises c. negatively; falls; falls d. negatively; rises; falls

d

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 twenty years to maturity b. a bond with one year to maturity c. a bond with ten years to maturity d. a bond with five years to maturity

b

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. falls; right b. rises; left c. rises; right d. falls; left

c

During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant. a. decreases; left b. increases; left c. decreases; right d. increases; right

a

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; rises d. right; falls

a

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________. a. lenders; borrowers b. lenders; advancers c. borrowers; advancers d. borrowers; lenders

a

Which of the following $1,000 face-value securities has the highest yield to maturity? a. a 5 percent coupon bond with a price of $1,200 b. a 5 percent coupon bond with a price of $1,000 c. a 5 percent coupon bond with a price of $800 d. a 5 percent coupon bond with a price of $1,100

c

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of a. 3 percent. b. 20 percent. c. 25 percent. d. 33.3 percent.

d

If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant. a. increase; increase b. decrease; decrease c. decrease; increase d. increase; decrease

d

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

When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. a. nominal; lend; borrow b. real; lend; borrow c. market; lend; borrow d. real; borrow; lend

d