Econ quiz 3

Which of the following $1,000 face-value securities has the lowest yield to maturity?

1) A 15 percent coupon bond with a price of $600. 2) A 15 percent coupon bond with a price of $800. 3) A 15 percent coupon bond with a price of $1,000. 4) A 15 percent coupon bond with a price of $1,200. 5) A 15 percent coupon bond with a price of$1,500. Answer: A 15 percent coupon bond with a price of$1,500.

Which of the following $1,000 face-value securities has the highest yield to maturity?

1) A 5 percent coupon bond selling for $1,000 2) A 10 percent coupon bond selling for $1,000 3) A 12 percent coupon bond selling for $1,000 4) A 12 percent coupon bond selling for $1,100 Answer: A 12 percent coupon bond selling for $1,000

Which of the following $1,000 face-value securities has the highest yield to maturity?

1) A 5 percent coupon bond selling for $1,000 2) A 10 percent coupon bond selling for $1,000 3) A 15 percent coupon bond selling for $1,000 4) A 15 percent coupon bond selling for $900 Answer: A 15 percent coupon bond selling for 900

Which of the following are true for discount bonds?

1) A discount bond is bought at a price below its face value. 2) The purchaser receives the face value of the bond at the maturity date. 3) U.S. Treasury bonds and notes are examples of discount bonds. 4) All of the Above. 5) Only (a) and (b) of the above. Answer: Only (a) and (b) of the above.

Which of the following are true of fixed payment loans?

1) The borrower repays both the principal and interest at the maturity date. 2) Installment loans and mortgages are frequently of the fixed payment type. 3) The borrower repays the loan by making the same payment every month. 4) Both (a) and (b) of the above. 5) Both (b) and (c) of the above. Answer: Both (b) and (c) of the above.

In which of the following situations would you prefer to be making a loan?

1) The interest rate is 9 percent and the expected inflation rate is 7 percent. 2) The interest rate is 4 percent and the expected inflation rate is 1 percent. 3) The interest rate is 13 percent and the expected inflation rate is 15 percent. 4) The interest rate is 25 percent and the expected inflation rate is 50 percent. Answer: The interest rate is 4 percent and the expected inflation rate is 1 percent.

In which of the following situations would you prefer to be borrowing?

1) The interest rate is 9 percent and the expected inflation rate is 7 percent. 2) The interest rate is 4 percent and the expected inflation rate is 1 percent. 3) The interest rate is 13 percent and the expected inflation rate is 15 percent. 4) The interest rate is 25 percent and the expected inflation rate is 50 percent. Answer: think 25 50

Which of the following are generally true of all bonds?

1) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in theinterest rate. 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interestrates rise. 3) Prices and returns for short term bonds are more volatile than those for longer term bonds. 4) All of the above are true. 5) Only (a) and (b) of the above are true. all of the above

Which of the following are generally true of all bonds?

1) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. 3) Prices and returns for short term bonds are more volatile than those for longer term bonds. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: 5) Only (a) and (b) of the above are true.

Which of the following are generally true of all bonds?

1) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in theinterest rate. 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. 3) Prices and returns for long term bonds are more volatile than those for shorter term bonds. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: All of the above are true.

Which of the following are generally true of all bonds?

1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the sameas the holding period. 2) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose term to maturities are longer than the holding period. 3) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: The only bond whose return equals the initial yield to maturity is one whose time to maturity is the sameas the holding period.

Which of the following are generally true of all bonds?

1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the sameas the holding period. 2) A rise in interest rates is associated with a fall in bond prices, resulting in capital losses on bonds whose term to maturities are longer than the holding period. 3) The longer a bond's maturity, the greater is the size of the price change associated with an interest rate change. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: All of the above are true.

Which of the following are true for a coupon bond?

1) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. 2) The price of a coupon bond and the yield to maturity are negatively related. 3) The yield to maturity is greater than the coupon rate when the bond price is above the par value. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: Only (a) and (b) of the above are true.

Which of the following are true for a coupon bond?

1) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. 2) The price of a coupon bond and the yield to maturity are negatively related. 3) The yield to maturity is greater than the coupon rate when the bond price is below the par value. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: All of the above are true.

If a security pays $110 next year and $121 the year after that what is its yield to maturity if it sells for $200?

10 percent

The return on a 10 percent coupon bond that initially sells at par for $1,000 and sells for $1,100 next year is

20 Percent

If a $10,000 face-value discount bond maturing in one year is selling for $8,000, then its yield to maturity is

25 percent

If a security pays $105 next year and $110 the year after that, what is its yield to maturity if it sells for $200?

5 Percent

The return on a 10 percent coupon bond that initially sells at par for $1,000 and sells for $950 next year is

5 percent

If a $10,000 face-value discount bond maturing in one year is selling for $6,000, then its yield to maturity is

66 percent

True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then your return on this bond will be higher than 5% later when you hold it to the maturity date.

False

True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer of the bond will have a return of 1.96% if she sells the bond next year.

False

True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its coupon rate rises above 2.125%.

False

True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. You will still receive the same amount of coupon payments from the issuer while you are holding the bond.

True

True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer's return for holding the bond for 10 years will be 1.96%.

True

True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its interest rate drops below 1.96%.

True

Which of the following are generally true of all bonds?

1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the sameas the holding period. 2) A rise in interest rates is associated with a fall in bond prices, resulting in capital losses on bonds whose term to maturities are longer than the holding period. 3) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: Only (a) and (b) of the above are true.

Which of the following are true for a coupon bond?

1) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. 2) The price of a coupon bond and the yield to maturity are positively related. 3) The yield to maturity is greater than the coupon rate when the bond price is above the par value. 4) All of the above are true. 5) Only (a) and (b) of the above are true. Answer: When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.

If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

100%

If a $10,000 face-value discount bond maturing in one year is selling for $9,000, then its yield to maturity is

11 percent

The return on a 10 percent coupon bond that initially sells at par for $1,000 and sells for $1,200 next year is

30 Percent

True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then the face value of your bond is lower.

False

True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then the interest rate you are earning from this bond is lower.

False

True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer of the bond will have a return of 2.125% if she sells the bond next year.

False

True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer's return for holding the bond for 10 years will be 2.125%.

False

True or False? The current interest rate on a 10-year treasury note (with face value = $100 and annual coupon rate = 2.625%) is 3.37%. The market price of this bond must be greater than $100.

False

True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its coupon rate drops below 2.125%.

False

True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its interest rate rises above 1.96%.

False

True or False? The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change.

False

If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

0 percent

Which of the following $1,000 face-value securities has the lowest yield to maturity?

1) A 5 percent coupon bond selling for $1,000 2) A 10 percent coupon bond selling for $1,000 3) A 15 percent coupon bond selling for $1,000 4) A 15 percent coupon bond selling for $900 Answer: A 5 percent coupon bond selling for $1,000

Which of the following $1,000 face-value securities has the highest yield to maturity?

1) A 5 percent coupon bond with a price of $600 2) A 5 percent coupon bond with a price of $800. 3) A 5 percent coupon bond with a price of $1,000. 4) A 5 percent coupon bond with a price of $1,200. 5) A 5 percent coupon bond with a price of $1,500. Answer: A 5 percent coupon bond with a price of $600

Which of the following are true for discount bonds?

1) A discount bond is bought at a price below its face value. 2) The purchaser receives the face value of the bond at the maturity date. 3) U.S. Treasury bills, U.S. savings bonds, and so-called zero-coupon bonds are examples of discount bonds. 4) All of the above. 5) Only (a) and (b) of the above. Answer: All of the above.

With an interest rate of 5 percent, the present value of $100 next year is approximately

$95

The return on a 5 percent coupon bond that initially sells at par for $1,000 and sells for $950 next year is

0 percent

With an interest rate of 10 percent, the present value of a security that pays $1,100 next year and $1,464.10 four years from now is:

$2,000

If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is

$650

If a $20,000 coupon bond has a coupon rate of 4 percent, then the coupon payment every year is

$800

With an interest rate of 8 percent, the present value of $100 next year is approximately

$93

Prices and returns for ________ bonds are more volatile than those for ________ bonds.

1) long-term; long-term 2) long-term; short-term 3) short-term; long-term 4) short-term; short-term Answer: long-term; short-term

A $10,000 coupon bond with an $800 coupon payment every year has a coupon rate of

8 Percent

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 one year to maturity

True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then you can sell your bond at today's market for a higher price than you paid.

True

True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the bond is traded on the market for more than $1,000.

True

True or False? A 10-year coupon bond is traded at par. This implies that the interest rate of this bond is zero.

False

True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the bond is traded on the market for $1,000.

False

True or False? U.S. Treasury bills, U.S. savings bonds, and so-called zero-coupon bonds are examples of discount bonds.

True