Econ305 Chapter4 MOST CALCULATION

Which of the following is true for discount bonds? A) The purchaser receives the face value of the bond at the maturity date. B) The purchaser receives the par value at maturity plus any capital gains. C) A discount bond is bought at par. D) Canada bonds and notes are examples of discount bonds.

A

A coupon bond that has no maturity date and no repayment of principal is called a ________. A) consol B) Government note C) Treasury bill D) cabinet

A

If a $5000 face-value discount bond maturing in one year is selling for $5000, then its yield to maturity is ________. A) 20 percent B) 0 percent C) 10 percent D) 5 percent

B

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is ________. A) $1000 B) $2000 C) $2200 D) $1210

B

Bonds whose term-to-maturity is longer than the holding period are subject to ________. A) exchange-rate risk B) inflation C) interest rate risk D) deflation

C

If a $5000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is ________. A) $130 B) $13 C) $650 D) $1300

C

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is ________. A) 5 percent B) 15 percent C) 10 percent D) 12.5 percent

C

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 ________. A) 3 percent B) 7 percent C) -3 percent D) -2 percent

A

The interest rate that equates the present value of payments received from a debt instrument with its value today is the ________. A) yield to maturity B) real interest rate C) current yield D) simple interest rate

A

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a ________. A) simple loan B) coupon bond C) fixed-payment loan D) discount bond

D

Which of the following $1000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond with a price of $800 B) A 5 percent coupon bond with a price of $1200 C) A 5 percent coupon bond with a price of $1000 D) A 5 percent coupon bond with a price of $600

D

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

A

What is the return on a 5 percent coupon bond that initially sells for $1000 and sells for $900 next year? A) -5 percent B) -10 percent C) 5 percent D) 10 percent

A

Which of the following is true of fixed payment loans? A) Commercial loans to businesses are often of this type. B) The borrower pays interest periodically and the principal at the maturity date. C) Installment loans and mortgages are frequently of the fixed payment type. D) The borrower repays both the principal and interest at the maturity date.

C

The sum of the current yield and the rate of capital gain is called the ________. A) par value B) perpetuity yield C) discount yield D) rate of return

D

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond. A) star yield B) discount yield C) future yield D) current yield

D

Which of the following is generally true of bonds? A) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) Prices and returns for short-term bonds are more volatile than those for longer-term bonds. D) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period.

D

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

A