Homework 13

Fred purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the first, second, and third years and pays $10,400 upon its maturity at the end of four years. The principal amount of this bond is ____, the coupon rate is ____, and the term of this bond is ____.

$10,000 4 percent Four years

If the principal amount of a bond is $10,000,000, the coupon rate is 7 percent , and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is:

$700,000

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually rose to $1,019. The one-year interest rate must be:

3 percent

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually fell to $981. The one-year interest rate must be:

7 percent

Financial intermediaries, such as commercial banks, provide benefits to:

both savers and borrowers

Regular interest payments made to bondholders are called ____ payments.

coupon

When the interest rate on newly issued bonds increases, the price of existing bonds:

decreases

Firms that extend credit to borrowers using funds raised from savers are called:

financial intermediaries

The financial system consists of financial ____, such as commercial banks, and financial markets, such as the stock market.

intermediaries

A bond is a(n):

legal promise to repay a debt

The market value of a particular bond at any given point in time is called the bond's:

price