Ch 4 Econ 3311
Consider a coupon bond that has a par value of $1,000 and a coupon rate of 8%. The bond is currently selling for $1,055.78 and has 2 years to maturity. What is the bond's yield to maturity (YTM)?
5% P= 1,055.78/(1.08)....
You decide to purchase a new home and need a $80 comma 000 mortgage. You take out a loan from the bank that has an interest rate of 5%. What is the yearly payment to the bank to pay off the loan in 10 years? FP =
$10,360.37
If the interest rate is 15%, what is the present value of a security that pays you $1,125 next year, $1,210 the year after, and $1,350 the year after that
$2,780.84 PV= 1125/(1.15) + 1210/(1.15)^2 + 1350/(1.15)^3
If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is
$2000
Find the price of a 7.50% coupon bond with a face value of $4000, a 12.00% yield to maturity, and 5 years to maturity. PV = Price of the bond =
$3,351.14
A consol paying $20 annually when the interest rate is 5 percent has a price of
$400
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year?
-5%
The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is
0 percent
If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is
10 Percent
If the nominal rate of interest is 2 percent, and the expected inflation rate is minus10 percent, the real rate of interest is
12 percent
What is the yield to maturity on a 2-year, $1 comma 000 discount bond with a current price of $947? Yield to maturity =
2.8%
If you expect the inflation rate to be 4 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
3 percent
Calculate the yield to maturity (YTM) for a one-year coupon bond with a purchase price of $800, a face value of $1,000, and a current yield of 5%. The yield to maturity on the bond given above is_____________ the YTM of a similar $1,000 20-year bond with a current yield of 10% selling for $800.
30% Greater than
A coupon bond with a face value of $800 that pays an annual coupon of $300 has a coupon rate equal to What is the approximate (closest whole number) yield to maturity on a coupon bond that matures one year from today, has a par value of $990, pays an annual coupon of $70, and whose price today is $1004.50
38% 6%
If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is
5 Percent
A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of
6 percent
What is the real interest rate if the nominal interest rate is 12% and the expected inflation rate is 6% over the course of a year?
6%
If you borrow $200 from a friend and in 3 years that friend wants $250 back from you, what is the yield to maturity in the loan? Yield to maturity=
7.72%
Which of the following $1,000 face-value securities has the highest yield to maturity?
A 12 percent coupon bond selling for $1,000
Which of the following $5,000 face-value securities has the highest yield to maturity?
A 12 percent coupon bond selling for $4,500
A) The present value of a loan in which $5000 is to be paid out a year from today with the interest rate equal to 2% is B) If a loan is paid after two years, and the amount $3000 is to be paid then with a corresponding 3% interest rate, the present value of the loan is
A) $4,901.96 B) $2,827.79
Which of the following are generally true of bonds?
A bond's return equals the yield to maturity when the time to maturity is the same as the holding period.
The interest rate on a consol equals the
Coupon payment divided by the price
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.
Rate of return
In which of the following situations would you prefer to be the lender?
The interest rate is 4 percent and the expected inflation rate is 1 percent.
Which of the following are true concerning the distinction between interest rates and returns?
The rate of return on a bond will not necessarily equal the interest rate on that bond.
All of the following are examples of coupon bonds except
U.S. Treasury bills
Examples of discount bonds include
U.S. Treasury bills
A discount bond is also called a ________ because the owner does not receive periodic payments.
Zero Coupon Bond
The present value of an expected future payment ________ as the interest rate increases.
falls
An equal decrease in all bond interest rates
increases the price of a ten-year bond more than the price of a five-year bond.
The riskiness of an asset's returns due to changes in interest rates is
interest rate risk
The ________ interest rate more accurately reflects the true cost of borrowing.
real
The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments
sum
An increase in the time to the promised future payment ________ the present value of the payment.
Decreases
A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.
Discount, Face
The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.
Fisher
The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.
Greater; Coupon; below
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 ________.
Negatively, Rises, Falls
There is ________ for any bond whose time to maturity matches the holding period.
No interest rate risk
__________is based on the notion that a dollar paid in the future is less valuable than a dollar paid today.
Present Discounted Value
An equal increase in all bond interest rates
decreases long-term bond returns more than short-term bond returns.
The ________ interest rate is adjusted for expected changes in the price level.
ex ante real
The interest rate that describes how well a lender has done in real terms after the fact is called the
ex post real interest rate.