Economics 3229 Ch. 4

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

D

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

A

If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon payment every year is A) $37.50 B) $3.75 C) $375.00 D) $13.75

A

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 one year to maturity B) a bond with five years to maturity C) a bond with ten years to maturity D) a bond with twenty years to maturity

A

What is the present value of $500 to be paid in 2 years if the interest rate is 5 percent? A) $453.51 B) $500.00 C) $476.25 D) $550.00

A

A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity B) pays the bondholder the fave value at maturity C) pays all interest and the face value at maturity D) pays the face value at maturity plus any capital gain

B

In which of the following situations would you prefer to be the lender? A) the interest rate is 9 percent and the expected inflation rate is 7 percent B) the interest rate is 4 percent and the expected inflation rate is 1 percent C) the interest rate is 13 percent and the expected inflation rate is 15 percent D) the interest rate is 25 percent and the expected inflation rate is 50 percent

B

The _____________ interest rate more accurately reflects the true cost of borrowing. A) nominal B) real C) discount D) market

B

A console paying $20 annually when the interest rate is 5% has a price of A) $100 B) $200 C) $400 D) $800

C

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays face value is called a A) simple loan B) fixed-payment loan C) coupon bond D) discount bond

C

Suppose in 2012 you buy 3% coupon rate, $100 face value bond for $100 that has 2 years left till maturity. If in 2013 interest rates decrease to 1%, what will be the price of your bond and what will be your return if you decide to sell it? A) $98 and 1% B) $100 and 3% C) $102 and 5% D) $103 and 6%

C

What is the future value of $50 five years from now at 2%? A) $48.50 B) $51.30 C) $55.20 D) $58.40

C

The riskiness of an asset's returns due to changes in interest rates is A) exchange-rate risk B) price risk C) asset risk D) interest-rate risk

D