FINA 3144 Chapter 3 Quiz

Which of the following are generally true of all​ bonds? A. Prices and returns for long−term bonds are more volatile than those for shorter−term bonds. B. 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. C. Even though a bond has a substantial initial interest​ rate, its return can turn out to be negative if interest rates rise. D. All of the above are true. E. Only A and B of the above are true.

D. All of the above are true.

Which of the following are true of coupon​ bonds? A. Corporate bonds are examples of coupon bonds. B. The owner of a coupon bond receives a fixed interest payment every year until the maturity​ date, when the face or par value is repaid. C. U.S. Treasury bonds and notes are examples of coupon bonds. D. All of the above. E. Only A and B of the above.

D. All of the above.

What is the return on a 5 percent coupon bond that initially sells for​ $1,000 and sells for​ $1,200 one year​ later? A. 25 percent B. −5 percent C. 10 percent D. 5 percent E. None of the above

A. 25 percent

In which of the following situations would you prefer to be making a​ loan? 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. The interest rate is 4 percent and the expected inflation rate is 1 percent.

The nominal interest rate minus the expected rate of inflation A. defines the real interest rate. B. is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. C. defines the discount rate. D. is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.

A. defines the real interest rate.

What is the return on a 5 percent coupon bond that initially sells for​ $1,000 and sells for​ $900 one year​ later? A. −5 percent B. 10 percent C. 5 percent D. −10 percent E. None of the above

A. −5 percent