Econ 311 Exam 1 Form D
With an interest rate of 6%, the present value of $100 next year is approximately
$94
The yield to maturity on a one year discount bond equals
(F-P)/P
What is the return on a 5% coupon bond that initially sells at its face value of $1000 and sells for $900 next year?
-5%
If a $5000 face value discount bond maturing for one year is selling for $5000, then its yield to maturity is
0%
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
5%
Which of the following is an example of a short-term debt instrument?
6 month treasury bills -less than a year
If the equilibrium price in the bond market for a one year discount bond is $9400, then the equilibrium interest rate in the loanable funds market must be
6.4%
Suppose First National Bank makes a one year simple loan of $10000 to acme Widget. If at the end of one year Acme Widget pays first national bank 10,700, then the interest rate on the loan must have been
7%
Which of the following is an example of a debt instrument?
A bond issued by general motors
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 bond with a one year maturity -Since I.R. increases, you don't want to hold for long time
The supply curve for bonds would be shifted to the LEFT by:
A decrease in government spending -less bonds issued by government so supply shrinks
Which of the following is NOT a financial intermediary?
A stock exchange
When borrowers posses information about there opportunities or activities that they keep private and don't disclose to lenders, a problem occurs called
Asymmetric information rises -One sided
As wealth increases in the economy, we would expect to observe
Bond prices rise and interest rates fall -with more money, the demand for bonds rises since more people want them
Equity securities are traded in the ______ market.
Capital
A bond that is bought at a price below its face value and the face value is repaid at a maturity date is a
Discount Bond
Everything else constant, an increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to ___ and the demand curve to shift to the _______.
Fall Left
Higher government deficits _____ the supply of bonds and shift the supply curve to the__________, everything else held constant.
Increase Right
A coupon bond involves
Interest payments from the borrower to the lender periodically during the life of the loan and payment by the borrower to lender of the loans face value at time of maturity.
A financial market in which only short-term debt instruments are traded is called the __________ market.
Money
A discount bond..
Pays the bondholder face value at maturity
In a business cycle expansion, the _____ of bonds increases and the ______ curve shifts to the ______ as business investments are expected to be profitable
SUPPLY SUPPLY RIGHT
A financial market in which previously issued securities can be resold is called a ____________ market.
Secondary
Long-Term debt has a maturity that is
Ten years or longer
If the expected return on stocks rise, while the expected returns on bonds do not change, then....
The equilibrium Interest rate will rise
The yield to maturity is equal to
The interest rate at which the present value of an assets future payments is equal to its price today.
Holding everything else constant,
The more liquid asset A, relative to alternative assets, the greater the demand will be for asset A
The ex ante interest rate equals
The nominal interest rate minus the expected rate of inflation
Which of the following statements about the total rate of return on bonds is NOT correct?
The total rate of return may never be negative - the rate of return can be negative
The interest rate that equates the present value of payments received from a debt instrument, with its value today is called
Yield to maturity
Which of the following would NOT be an example of a financial market transaction?
You deposit $100 in your bank checking account -Spend the checking, so bank doesn't invest it
Which of the following can be described as involving indirect finance?
You make a deposit to a bank -Dont know how bank is going to use that money
The demand curve for bonds would be shifted to the LEFT by
an increase in expected returns on other assets
When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a
exchange -Wall Street -Chicago exchange
The yield to maturity for a discount bond is ________ related to the current bond price.
negatively
A simple loan involves...
payment of interest by the borrower to the lender only at the time the loan matures
The main role of financial intermediaries is to
pull funds from savers and lend them to borrowers -JSC
The total rate of return on bonds is equal to
the current yield plus the rate of capital gains
For a specific change in the yield to maturity
the longer the time until a bond matures, the greater the change in its price
