MIDTERM #2 CHAPTER 4
If the interest rate is 10%, what is the present value of a security that pays you $1,100 next year, $1,220 the year after, and $1,331 the year after that?
Present value is $3008.26
What is the present value of $50 to be paid in three years if the interest rate is 15%?
PV = $32.8832.88
How much is $200 to be received in exactly one year worth to you today if the interest rate is 12%? The value today is ___?(Round your response to the nearest penny.) Part 2 This same $200 received in one year would be worth____to you today if the interest rate rose to 17%.
$178.57 Less
What is the real interest rate if the nominal interest rate is 10% and the expected inflation rate is 10% over the course of a year?
0%
If you lend money at a 12% nominal interest rate, but you expect inflation to be 7% over the life of the loan, then you expect your purchasing power to grow at a rate of __%. Part 2 The real interest rate is negative when the nominal interest rate is ____ the inflation rate. Part 3 If the nominal interest rate is 2% and the expected rate of inflation is 2%, then the real interest rate is A. 0%. B. −1%. C. 2%. D. 3%. E. 1%.
5 less than A - 0 %
A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a Question content area top Part 1 A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A. fixed−payment loan. B. discount bond. C. simple loan. D. coupon bond.
A
The ________ is the final amount that will be paid to the holder of a coupon bond. A. face value B. present value C. coupon value D. discount value
A
Which of the following are true of fixed payment loans? A. Installment loans and mortgages are frequently of the fixed payment type. B. The borrower pays interest periodically and the principal at the maturity date. C. The borrower repays both the principal and interest at the maturity date. D. Commercial loans to businesses are often of this type.
A
If interest rates decline, which would you rather be holding, long-term bonds or short-term bonds? Part 2 A. Long-term bonds because their price is likely to fall B. Long-term bonds because their price would increase more than the price of short-term bonds Your answer is correct. C. Short-term bonds because their price is less sensitive to interest-rate volatility D. Short-term bonds because their price would increase more than the price of long-term bonds
B
The concept of ________ is based on the common−sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. Question content area bottom Part 1 A. future value B. present value C. deflation D. interest
B
The present value of an expected future payment ________ as the interest rate increases. A. rises B. falls C. is constant D. is unaffected
B
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year? A. 10 percent B. 25 percent C. −5 percent D. 5 percent
B
A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of A. .6 percent. B. 6 percent. C. 5 percent. D. 10 percent.
B 6%
Which of the following information would you need to take into consideration when deciding to receive $5,000 today or $5,500 one year from today? A. Annual interest rate. B. The present value of money. C. Both A and B. You would prefer to accept today if the annual interest rate is 11%.
C $5,000 today
A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a A. coupon bond. B. fixed−payment loan. C. simple loan. D. discount bond.
C
Interest−rate risk is the riskiness of anasset's returns due to A. changes in the coupon rate. B. default of the borrower. C. interest−rate changes. D. changes in the asset's maturity.
C
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A. 5 percent B. −10 percent C. −5 percent D. 10 percent
C
With an interest rate of 6 percent, the present value of $100 to be received next year is approximately A. $106. B. $100. C. $94. D. $92.
C
The nominal interest rate minus the expected rate of inflation A. is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. B. defines the discount rate. C. is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. D. defines the real interest rate.
D
A U.S. Treasury bill is an example of a A. simple loan. B. fixed-payment loan. C. coupon bond. D. discount bond. The estimated current purchasing price of a discount bond with a face value of $2000 and a yield to maturity of 8% is What is the approximate yield to maturity on a discount bond that matures one year from today with a maturity value of $10,600, and the price today is $9333.67? A. 83% B. 9% C. 7% D. 13.6%
D $1851.85 D